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Global liquidity is shrinking and that’s no bad thing

Published

3 years ago

May 21, 2021

After a year of record-breaking cash injections, the world’s big central banks are starting to ease off the stimulus pedal, forcing economies and financial markets to practise walking on their own again.

Not everyone is dismayed at the prospect. Since March 2020, central banks and governments have flooded markets with some $27 trillion – a third of global gross domestic product, consultancy CrossBorder Capital estimates.

Since then, world stocks have surged 85%, economic growth is rebounding from last year’s pandemic-inflicted devastation, and inflation expectations are rising. Continuing to pump out cash at last year’s pace would do more harm than good, some economists argue.

Still, cheap cash remains plentiful. At the end of March, 82% of central banks were running loose monetary policies, CrossBorder estimates, though that is down from 88% in January.

Last month the Bank of Canada began tapering its asset purchases and signalled it could raise interest rates next year, while the Bank of England this month slowed its money-printing. Others, including the Federal Reserve, may start scaling back stimulus by the end of the year.

In other words, the growth of liquidity – the catchphrase for all that money pumped in by central banks, private lenders and governments – has peaked and is already waning.

Total liquidity from central banks and private financial institutions in the United States, China, euro zone, Japan and Britain topped 28.8% of GDP last year but is now running at 18.5%, estimates Steve Donzé, senior macro strategist at Pictet Asset Management.

The main drag is China, he says, which has halved its liquidity additions from last year’s peak.

Global money supply has dipped to 24% from last year’s peak of 26%, but is way above its pre-pandemic levels of 10%. (Graphic: 3-month growth of Global M2 ex China, https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmeyyxvr/Pasted%20image%201621424406439.png)

The other big stimulus plank was government spending but as lockdowns end, so do emergency support schemes for workers and businesses.

Some central bank policy tightening may be offset by U.S. President Joe Biden’s stimulus plans, which if approved, could top 15% of GDP. But much of that is to be financed through tax rises, limiting its stimulatory effect.

JPMorgan strategist Nikolaos Panigirtzoglou said that on all commonly-used measures of gauging “excess liquidity” the extraordinarily loose conditions of 2020 appear to be tightening.

First, money supply growth has been falling relative to GDP since January, he notes, a reversal of 2020.

“That means we may already have entered a phase where excess liquidity is being contracted,” Panigirtzoglou said.

Second, the cash holdings of global investors relative to the size of their equity and bond holdings are now “exceptionally low”. It means stock markets “must rely on other things like the growth trajectory to sustain the bull market”. (Graphic: Pace of central bank purchases falls in 2021, https://fingfx.thomsonreuters.com/gfx/mkt/oakpekyjdpr/Pasted%20image%201621423590115.png)

TIME TO TAPER?

Since the 2008 crisis, markets have become hooked on ever-increasing sums of cash ploughed in by central banks. Past attempts to cut money-printing, such as in 2013 and late-2018, sowed market panic, forcing policymakers to backtrack.

But today’s backdrop, with economies recovering strongly and bond markets finally pricing in the return of inflation, looks different.

Property markets, fed by abundant liquidity, may be overheating; house prices are rising at an annualised six-month rate of more than 10%, according to data from the Bank of International Settlements analysed by CrossBorder Capital.

So piling on more stimulus risks an inflation explosion and overheating, some economists warn. Larry Summers, advisor to former President Barack Obama, accused the Fed this week of “dangerous complacency” in keeping policy so loose.

Pictet’s Donzé too believes the Fed should kick off tapering by year-end “before excesses emerge and force a drastic tightening that could derail current expansion.”

The Fed, ECB, BoE and the Bank of Japan could shrink asset purchases this year to about $3.4 trillion from almost $9 trillion last year, BofA estimates.

But that’s still huge by pre-2020 standards. Aside from the Bank of Canada, big central banks will likely end 2021 with significantly bigger balance sheets.

Norman Villamin, chief investment officer at Swiss wealth manager UBP, said that given policymakers’ recent experience of trying to tighten and their focus on job creation, “if policymakers are going to make a mistake, it will likely be a mistake of erring on the side of being too easy rather than becoming too tight too soon.” (Graphic: Central bank balance sheet projections, https://graphics.reuters.com/HEALTH-CORONAVIRUS/jznvnjmjzvl/chart.png)

(Editing by Sujata Rao and Hugh Lawson)

News

Langford, Heim lead Rangers to wild 13-8 win over Blue Jays

Published

9 hours ago

September 17, 2024

Anne Joseph

ARLINGTON, Texas (AP) — Rookie Wyatt Langford homered, doubled twice and became the first Texas player this season to reach base five times, struggling Jonah Heim delivered a two-run single to break a sixth-inning tie and the Rangers beat the Toronto Blue Jays 13-8 on Tuesday night.

Leody Taveras also had a homer among his three hits for the Rangers.

Langford, who also walked twice, has 12 homers and 25 doubles this season. He is hitting .345 in September.

“I think it’s really important to finish on a strong note,” Langford said. “I’m just going to keep trying to do that.”

Heim was 1-for-34 in September before he lined a single to right field off Tommy Nance (0-2) to score Adolis García and Nathaniel Lowe, giving Texas a 9-7 lead. Heim went to the plate hitting .212 with 53 RBIs after being voted an All-Star starter last season with a career-best 95 RBIs. He added a double in the eighth ahead of Taveras’ homer during a three-run inning.

Texas had 13 hits and left 13 men on. It was the Rangers’ highest-scoring game since a 15-8 win at Oakland on May 7.

Matt Festa (5-1) pitched 1 1/3 scoreless innings to earn the win, giving him a 5-0 record in 13 appearances with the Rangers after being granted free agency by the New York Mets on July 7.

Nathan Eovaldi, a star of Texas’ 2023 run to the franchise’s first World Series championship, had his worst start of the year in what could have been his final home start with the Rangers. Eovaldi, who will be a free agent next season, allowed 11 hits (the most of his two seasons with Texas) and seven runs (tied for the most).

“I felt like early in the game they just had a few hits that found the holes, a few first-pitch base hits,” said Eovaldi, who is vested for a $20 million player option with Texas for 2025. “I think at the end of the day I just need to do a better job of executing my pitches.”

Eovaldi took a 7-3 lead into the fifth inning after the Rangers scored five unearned runs in the fourth. The Jays then scored four runs to knock out Eovaldi after 4 2/3 innings.

Six of the seven runs scored against Toronto starter Chris Bassitt in 3 2/3 innings were unearned. Bassitt had a throwing error during Texas’ two-run third inning.

“We didn’t help ourselves defensively, taking care of the ball to secure some outs,” Blue Jays manager John Schneider said.

The Blue Jays’ Vladimir Guerrero Jr. had a double and two singles, his most hits in a game since having four on Sept. 3. Guerrero is hitting .384 since the All-Star break.

TRAINER’S ROOM

Blue Jays: SS Bo Bichette (calf) was activated and played for the first time since July 19, going 2 for 5 with an RBI. … OF Daulton Varsho (shoulder) was placed on the 10-day injured list and will have rotator cuff surgery … INF Will Wagner (knee inflammation) was placed on the 60-day list.

UP NEXT

Rangers: LHP Chad Bradford (5-3, 3.97 ERA) will pitch Wednesday night’s game on extended five days’ rest after allowing career highs in hits (nine), runs (eight) and home runs (three) in 3 2/3 innings losing at Arizona on Sept. 14.

Blue Jays: RHP Bowden Francis (8-4, 3.50) has had two no-hitters get away in the ninth inning this season, including in his previous start against the New York Mets on Sept. 11. Francis is the first major-leaguer to have that happen since Rangers Hall of Famer Nolan Ryan in 1989.

—

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Billie Jean King set to earn another honor with the Congressional Gold Medal

Published

10 hours ago

September 17, 2024

Anne Joseph

WASHINGTON (AP) — Billie Jean King will become the first individual female athlete to be awarded the Congressional Gold Medal.

Reps. Brian Fitzpatrick of Pennsylvania and Mikie Sherrill of New Jersey announced Tuesday that their bipartisan legislation had passed the House of Representatives and would be sent to President Joe Biden for his signature.

The bill to honor King, the tennis Hall of Famer and activist, had already passed unanimously in the Senate.

Sherrill, a Democrat, said in a statement that King’s “lifetime of advocacy and hard work changed the landscape for women and girls on the court, in the classroom, and the workplace.”

The bill was introduced last September on the 50th anniversary of King’s victory over Bobby Riggs in the “Battle of the Sexes,” still the most-watched tennis match of all-time. The medal, awarded by Congress for distinguished achievements and contributions to society, has previously been given to athletes including baseball players Jackie Robinson and Roberto Clemente, and golfers Jack Nicklaus, Byron Nelson and Arnold Palmer.

King had already been awarded the Presidential Medal of Freedom in 2009. Fitzpatrick, a Republican, says she has “broken barriers, led uncharted paths, and inspired countless people to stand proudly with courage and conviction in the fight for what is right.”

___

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Account tweaks for young Instagram users ‘minimum’ expected by B.C., David Eby says

Published

10 hours ago

September 17, 2024

Anne Joseph

SURREY, B.C. – Premier David Eby says new account control measures for young Instagram users introduced Tuesday by social media giant Meta are the “minimum” expected of tech companies to keep kids safe online.

The parent company of Instagram says users in Canada and elsewhere under 18 will have their accounts set to private by default starting Tuesday, restricting who can send messages, among other parental controls and settings.

Speaking at an unrelated event Tuesday, Eby says the province began talks with social media companies after threatening legislation that would put big tech companies on the hook for “significant potential damages” if they were found negligent in failing to keep kids safe from online predators.

Eby says the case of Carson Cleland, a 12-year-old from Prince George, B.C., who took his own life last year after being targeted by a predator on Snapchat, was “horrific and totally preventable.”

He says social media apps are “nothing special,” and should be held to the same child safety standards as anyone who operates a place that invites young people, whether it’s an amusement park, a playground or an online platform.

In a progress report released Tuesday about the province’s engagement with big tech companies including Google, Meta, TikTok, Spapchat and X, formerly known as Twitter, the provincial government says the companies are implementing changes, including a “trusted flagger” option to quickly remove intimate images.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 17, 2024

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