1/ While the US Dollar has pulled back in January it was not unexpected looking at net issuance by the US Treasury and the rate of change in excess reserves. Using a 3 month adv. on net issuance and excess reserves their may be further upside to the US Dollar.
2/ There was a small uptick in global liquidity in December 2018 in rate of change terms. This has supported many markets that were oversold. However, there has been no sizeable change in trend. Will know more once January data is released.
Updated chart looking at the $USD, net issuance by the US Treasury, US excess reserves YoY% (inverted) & USTs held in foreign official accounts YoY% (inverted).
Liquidity flow on effects.
Global manufacturing PMI slipped to a 32-month low in Feb (50.6 vs 50.8 - Jan). Output growth eased and new orders were near stagnation as global trade remained subdued.
Big drop of in net issuance due to the debt ceiling standoff. Rate of change in YoY for net issuance has dropped from over 100% to 40%. However, excess reserves continue to shrink., closing in on -30% YoY. Data as at 28/02/2019.
Cap on monthly redemptions in Fed balance sheet to be reduce to $15 billion from $30 billion per month starting in May. This likely to lead to a slowing in the YoY% change of excess reserves. Dollar down from here?
Fed, ECB, PBOC, BOJ & SNB USD balance combined YoY% now negative and not showing signs of bottoming yet.
Updated chart with net issuance data for April 2019. Note the the light blue line.
MS - "Japanese investors tend to reduce their US Treasury holdings during Fed tightening cycles as rising hedging costs reduce the return of currency-hedged portfolios."
MS - "US banks have increased their holdings of US Treasuries. Tightness in short-term rates pushed the EFFR above IOER, and suggests that US institutions have turned to alternative funding sources, including FX currency swaps, to raise USD."
MS - "Other sources of demand have more than compensated for the impact of rising net supply on yields. Japan has reduced its Treasury holdings while
Europe has increased its exposure. Aggregate change in net foreign holdings is flat over the past year."
Global M1 contracting - -0.69%
Equities to reverse lower?
Dollar to rapidly strengthen?
Central bankers are all talk & no show at the moment...🧐
G5 balance sheet contracting -6.25% YoY%
US excess reserves contracting at -27.20% YoY. Less than previously but still a strong dollar contributing factor.
G5 B/S slight uplift but still strongly negative at -5.74% YoY
Not much help here...🤣
"Foreign investors have apparently understood long-term $USD valuation risks, and are reducing USD-denominated market exposure. Foreign FDI flows tend to follow security flows. US repatriation flows have remained strong, supporting the USD."
- Net issuance of USTs YoY% 👇to 5% in May 2019, waiting on June data.
- The contraction in excess reserves slowed to -19.30% from >-25% YoY.
Central banks making a poor attempt to help.
G5 Central Bank Balance Sheet $USD accelerates to -3.86% YoY.
Global M1 $USD YoY% up to 1.67%.
- Broad Dollar Trade Weighted Index 2.80% YoY
- WTI Crude Oil -12.50% YoY
- SPX Adjusted EPS Daily 2.90% YoY
US Treasury net issuance running at 5% YoY, sharply down from a late 2018 high of close to 150% YoY.
The contraction in excess reserves continues at -26.10%.
Combined contraction of -24.78% YoY.