Unexpected? Hardly.
From MarketWatch, March 3:
Gains for global equities have left many on Wall Street perplexed as stocks — especially high-risk growth names with little or no profits — have rebounded from last year’s punishing selloff, resisting both the pull of more attractive bond yields, and the threat of higher interest rates.
But some Wall Street analysts say they’ve found an explanation that has little to do with inflation and the state of the global economy.
The upshot is this: The Federal Reserve, European Central Bank and Bank of England have advertised that they’re trying to drain the ocean of banking-system liquidity, but on a global scale, liquidity has actually increased in recent months. That’s due in part to factors that are outside the control of policy makers.
A trillion-dollar boost to asset prices
In a research note shared with clients last month, Matt King, a global markets strategist at Citigroup Inc., detailed how the world’s largest central banks had recently injected $1 trillion into the global financial system.The bulk of this increase, according to King’s analysis, came from the People’s Bank of China, which has bucked the trend of global monetary tightening and instead opted to directly inject liquidity into its banking system, accounting for the largest share of the $1 trillion figure.
“Even as the central banks have told us they’re going to be tightening, it turns out that on at a global level, they’ve just added $1 trillion worth of liquidity over the past three months,” King said.
In his report, King said he was inspired to take a closer look at central-bank balance sheets after concluding that changes in the fundamentals — meaning the outlook for the economic growth and inflation — failed to explain moves across global markets, including a rebound in global equity prices.
When he finally mapped moves in global equities against the shifting tides of global central bank liquidity, he found that they were a near-perfect fit.
The chart below tracks the performance of the MSCI World Index 990100, against the ebbs and flows of banking-system liquidity. The index has risen 12% since the end of September, according to FactSet data. Around the same time, global central bank liquidity stopped ebbing, and started expanding once more....
....MUCH MORE
January 27, just looking at the U.S. "How Can We Have A Bear Market Rally? Because Financial Conditions Aren't Getting Tighter, Au Contraire...."
Preceded, Jan. 23, by the Fed, BoJ and ECB in "An Interesting Chart: Equities and Central Bank Balance Sheets"
And China in December:
"China Quietly Launches QE: Beijing Orders Large Insurers To Buy Bonds To Contain Selling Panic"
I'm telling you, there is something very wrong with China's economy....
"Chinese factories are shutting down two weeks earlier than usual ahead of Chinese New Year"
It really is starting to appear that China could see a recession* caused by slowdowns in their Western customers' economies.
It's only recently that we've started thinking the previously unthinkable:
December 1 "What If Our Understanding Of China's "Zero Covid" Is 180 Degrees Wrong?"
That last post floats the idea that the economic downturn is not a result of the insane lockdowns but rather that the lockdowns are a tool to keep inflation from going bonkers as the government/Communist Party pours liquidity into the system to prevent collapse initiated by the property developers.
If this is the case, the insurance company/bank bond buying isn't so much a QE move but an effort to contain the growing suspicion among the Chinese investor class that all efforts to stave off economic collapse will have the same result they saw in the West: Inflation.
And the outro from December 16, 2022's "US ‘peak’ inflation talk misses the China point":
Our takeaway? For now watch the Chinese liquidity pump and the Chinese Credit Impulse.Something about actually doing coordinated worldwide QT terrifies central Bankers. and then there's Japan.
More on that at a later date.
