Our intro to May 16's "Gavyn Davies: 'The consequences of shrinking the Fed’s balance sheet'":Cosmologically regressive but it saves on the typing.
This has the potential to be the most important econ/finance/market story of the second half of this year....A no-brainer, and I'm just the person to say it....
By now everyone is probably familiar with one of the scariest financial charts created recently by Bank of America: it shows that not only have central banks injected a record $15.1 trillion in liquidity since the crisis, but in 2017 alone - a time when the global economy is supposedly improving - they added a record $1.5 trillion, or as BofA's Michael Hartnett calculated, $3.1 trillion annualized.
Or maybe not: in a little noticed comment from Hartnett made later in June, Hartnett observed that "central banks in aggregate still printing: bought $350bn in April, $300bn in May, <$100bn in June…big 5 central banks buying less but not yet selling."
And while the ECB quietly tapered from €80 to €60BN last December (even though Mario Draghi went to great lengths to described the tapering as a non-event) and is expected to announce a formal tapering again, most likely during Jackson Hole , nowhere is this quiet slowdown in central bank purchases more evident than in the balance sheet of the BOJ, whose average purchases have declined sharply in recent months from a JPY80trillion average to a far lower level:
Indeed, it is safe to say that the topic of the liquidity injection by central banks, or rather its removal, has become one of the most discussed topics within the financial community. Case in point, in a note from last week, Credit Suisse's Andrew Garthwaite wrote that "on a year-on-year basis, the aggregate balance sheet of the big 4 central banks is set to continue expanding through 2018, although the pace of expansion will steadily slow, as shown in the second chart below. Our estimates, which include our economists' assumptions on ECB, Fed and BoJ buying and keep current FX rates constant, suggest that it is Q3 2018 when the contraction in the Fed's balance sheet on a monthly basis (which at that point will be $40bn a month) will start to exceed the purchase of assets by the ECB and BoJ."...MORE
Or, as he puts it in easily digestible format: "The inflection in central bank balance sheets comes in Q3 2018."...