The Central Bank Party Is Already Over

Friday, June 15, 2018
By Paul Martin

by Tyler Durden
ZeroHedge.com
Fri, 06/15/2018

When looking at what is arguably the most important chart for risk assets – the net change in liquidity injections/drains from central banks (in addition to net credit creation in China of course) – we have traditionally shown readers some version of the following BofA chart, which demonstrates the Y/Y change in Global QE (Big 3 Central Banks + PBOC)…

… is about to go negative some time in the third quarter of 2018. However, when looked at from a different, more short-term perspective, the central bank party is already over.

As BofA’s Barnaby Martin writes, “while yesterday was all about the pending finale for European (net) asset buying, the bigger story, in fact, has been that global QE has rapidly declined over the last few months. Chart 1 shows global central bank balance sheet growth, on a year-over-year basis, inclusive of China FX reserves.” Note that since Martin has traditionally converted all amounts to USD, the recent surge in the greenback has only accelerated the liquidity decline.

Note how fast the YoY growth in global QE has declined of late. What’s behind such a quick drop? The ECB has been purchasing fewer bonds in ‘18 and China FX reserve growth has cooled (on the other hand, BoJ QE has been relatively stable, and the Fed continues with modest balance sheet run-off).

But what happens if instead of looking at Y/Y growth in central bank balance sheets, one looks instead at the monthly change in QE volumes? Well, as can be clearly seen in the next chart, “the volume of monthly global QE buying has declined significantly over the last two months, commensurate with the USD appreciation.”

The Rest…HERE

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