Liquidity 02 incl QE, Twist, LTRO, APP etc (Jun 14 - Dec 24)

[winston]

Since March 29, the Treasury has poured $114 billion of its cash hoard back into the market by paying down debt.

That windfall ends today... Thursday, April 19. From then on, Treasury supply will just keep building.

Source: Sure Money

[winston]

The date of the next big drop revealed

In total, the Fed has offloaded $117.9 billion this year.

And the S&P has shed a combined 4.7% on the days it tightened.

The Fed openly publishes its portfolio – including the dates its bond holdings reach maturity.

And the next significant maturity date is… May 31.

May 31 is the date of the next drop.

On that date, the aforesaid Kevin Muir informs us, nearly $29 billion drops off the balance sheet.

That is the largest balance sheet roll-off to date.

Source: The Daily Reckoning

http://thecrux.com/revealed-the-date-of ... -big-drop/

[winston]

How the Fed interest rate rise and other central banks’ monetary policies have left financial markets all jittery

Nicholas Spiro says the divergence in monetary policy among the Federal Reserve, European Central Bank and Bank of Japan has unsettled investors

While Europe’s central bank has decided to end its QE programme in December, it will not start to raise rates before the second half of 2019.

Source: SCMP

http://www.scmp.com/comment/insight-opi ... s-monetary

[winston]

By the end of the year the Fed will have withdrawn $450 billion from the banking system if it sticks to its published schedule.

The annual bloodletting will then plateau at $600 billion per year until the balance sheet reaches a tight reserve position. That should happen at some point in mid 2020.

Source: Sure Money

[winston]

A bunch of 'canaries in the coal mine'

Rick Rieder is worried about liquidity.

According to the chief investment officer of global fixed income at BlackRock, the retreat of central banks from credit markets could worsen liquidity, or complicate how smoothly other investors are able to do the same.

Rieder, who oversees $1.9 trillion in assets, has been voicing this concern for several months as central banks reduced their bond purchases.

Back in January, the Bank of Japan said its balance sheet shrank month-on-month for the first time since it started buying government bonds, equity exchange-traded funds, and other assets in late-2012.

In June, the European Central Bank said it was set to end the €2.5 trillion ($3 trillion) bond-buying program known as quantitative easing that it initiated after the eurozone debt crisis.

The Fed continues to slowly unwind its $4 trillion-plus portfolio of bonds.

As central banks work quietly and slowly, more powerful forces are brewing in the foreground, Rieder said in a recent note.

Source: Business Insider

[winston]

The Fed is pulling $50 billion per month out of the banking system and the Treasury simultaneously sucking vast amounts of cash out of the market with $780 billion in new debt sales in the fourth quarter 2018 and first quarter 2019.

Source: Sure Money

[winston]

Central Banks Worldwide Are Lifting Stocks. Is the Stability Masking Trouble Ahead?

By Randall W. Forsyth

FOMC: The policy-setting panel confirmed earlier statements attesting to its patience in raising interest rates and flexibility in shrinking its balance sheet, which is another form of policy tightening.

At the same time, the People’s Bank of China has engaged in a number of easing moves.

Source: Barron's

https://www.barrons.com/articles/centra ... 20Magazine

[winston]

Modern monetarists could push world's economy off the cliff

by Andrew Wong

Modern monetary theory has become a hot topic in the markets these days.

US Federal Reserve chairman Jerome Powell admits it is difficult to define what MMT actually means but the basic principle is that a government has a monopoly on its own currency, no budget constraints, and the only limitation to a government's spending power is excessive inflation.

Proponents of modern monetary theory argue that a government that runs a large budget deficit though investments in education, infrastructure, and research and development, could end up boosting long-term economic growth. So they have no problem with a government piling up large debts.

But there are hidden problems that these modern monetarists have ignored. A huge number of government bonds will cramp the live space for corporate bonds and investors might lose interest in government bonds. In addition, the government will pay more interest on its debt, which in turn will hurt its coffers.

But forget about debating the feasibility of modern monetary theory. A point more worthy of discussion is: why has MMT become such a burning issue?

Firstly, quantitative easing (QE) has severely curbed the cost of debt, while also making markets less aware of the risks of debt issuance and even assuming that debt is not a problem.

What's even more worrying is that QE has ended and President Donald Trump has rolled out massive tax cuts, but the US and the global economy show no signs of sustainable growth. However, when governments and central banks start to rely too much on this philosophy, it will, of course, will attract many supporters.

If nations begin to implement modern monetary theory, the market might become averse to these irresponsible policies. This is because monetary policies without budgetary constraints may eventually lead to profligacy and drastic changes in the currency reserves of all countries in the world.

Moreover, many potential crises will erupt.

For example, many countries will choose to leave the European Union because of fewer restrictions on spending. Policies such as free health care and education would be rolled out across the board, but at the same time xenophobic voices would become more vocal in order to protect the country's resources, increasing geopolitical risks.

And the quality of policy in each country will decline. The indiscriminate use of illegal drugs will eventually lead to a decline in the effectiveness of policy, further complicating long-term economic and inflation risks.

If modern monetary theory does take a foothold, it may represent the end of the global economy as we know it, and the end result could be a repeat of 1929 to 1945, with the global economy in a depression and a world war as a solution, which would be an absolute tragedy.

Source: The Standard

http://www.thestandard.com.hk/section-n ... 0401&sid=2

[winston]

Six developed market and 13 emerging market central banks are expected to ease in the second half of 2019.

Source: J.P. Morgan

[winston]

NY Fed to pump $75 bn into money markets daily through Oct 10

The New York Fed -- which handles the levers that control the flow of money in the system -- has for the past four days had to pump billions into money markets after bank demand for cash pushed interest rates above the Fed's target

New York (AFP) - The New York Federal Reserve Bank said Friday it will inject billions into the US financial plumbing on a daily basis for the next three weeks in an effort to prevent a spike in short-term interest rates.

The Fed will offer up to $75 billion a day in repurchase agreements -- exchanging secure assets for cash for very short periods -- through October 10, it said in a statement.

In addition, it will offer three 14-day "repo" operations of at least $30 billion each.

Banks have struggled in recent days to find the cash needed to meet reserve requirements which has pushed up short-term borrowing rates, prompting the New York Fed to pump billions into US money markets with repo operations over the past four days.

However, in a sign a cash crunch could be easing, demand for liquidity on Friday did not significantly exceed the amount offered, as it had on two prior days.

After October 10, the New York Fed will "conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined."

Federal Reserve Chair Jerome Powell this week downplayed concerns about the money market's cash crunch, saying it was not a sign of problems in the wider economy or a concern for monetary policy.

Economists say an array of conditions converged to dry up liquidity in the banking system -- including quarterly corporate tax payments and a surge in government debt sold to investors, which drained cash out of banks.

Banks borrow regularly in markets for very short periods, usually overnight, to make sure their daily cash reserves do not fall below the required level. But interest rates increase with demand.

The New York Fed adds or removes liquidity to keep interest rates in line with the desired target, but the cash shortage in recent days prompted it to pump funds into the short-term repo market as rates soared and threatened to break out of the Fed's target range.

The central bank cut benchmark lending rates interest rate on Wednesday, and also made some technical adjustments to try to keep the market rates from breaking out of the range, including cutting the interest it offers on bank reserves held at the Fed that are in excess of the minimum required level.

Source: AFP

https://news.yahoo.com/ny-fed-pump-75-b ... 43871.html