Emerging Markets Latest GLI, January 2016

by Michael J. Howell16. January 2016 10:35

Global Liquidity, our forward-looking indicator of investment risk and future economic prospects, slid lower at the end of 2015, closing the year at an index value of 41.8 (‘normal’ range 0-100). The Emerging Market Liquidity subcomponent (EMLI™) settled at a far lower index value of 30.2, or barely changed on the month and only a tad higher compared to end-2014. The GLI™ (Global Liquidity Index) and the EMLI™ both warn of continued tough investment markets and slower economic activity ahead.

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Global Liquidity Latest, January 2016

by Michael J. Howell10. January 2016 19:08

Global Liquidity our forward-looking indicator of investment risk and future economic prospects slid lower at the end of 2015, closing the year at an index value of 41.8 (‘normal’ range 0-100). This compares to 50.2 for end-2014. The GLI (Global Liquidity Index) essentially trended lower consistently through 2015 and its low level warns of continued tough investment markets and slower economic activity ahead. Liquidity is not yet at the sub-30 index levels that warn of economic recession and financial crisis, but this is consistent with choppy markets that grind lower. Three particular statistics focus our attention: (1) US private sector liquidity growth (index 65.9); (2) Chinese Central Bank (PBoC) liquidity provision (index 37.3) and (3) net capital inflows/ outflows from China (minus US$146 billion, or US$0.8 trillion of net outflows for 2015). However, since PBoC actions largely rest on the pace of capital outflows, the second and third factors essentially boil down to the same capital flow question: When will China’s capital flight end?

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Global View January 2016: Measuring the Stance of Central Bank Policy in a Low/Zero Interest Rate Environment

by Michael J. Howell10. January 2016 18:59

This report explains why we use liquidity indexes to measure Central Bank behaviour and shows that, contrary to popular belief, the US Federal Reserve may not be as ‘loose’ as its low interest rate stance suggests. In short, further rate hikes in 2016 risk a policy error.

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Global View December 2015: Summarising the 2016 Picture - Weak Liquidity, Worsening Credit Outlook, Further Currency Wars and More Deflation

by Michael J. Howell23. December 2015 14:19

US private sector and Chinese PBoC liquidity plus cross-border flows to EM are critical factors.

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Global View December 2015: Was the Fed's New Monetary Policy A Success?

by Michael J. Howell18. December 2015 15:03

To the extent that the Fed raised rates smoothly by 25bp without any serious dislocations, apart from a small jump in the US dollar and a further widening in credit spreads, the answer is yes. However, set into a wider context of credit market control, the truth is that it will take weeks or months to fully understand. But the real story, for us, is that the US markets are tightening faster than the Fed! A flatter US Treasury curve may be the logical result.

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Emerging Markets Latest GLI, December 2015

by Michael J. Howell16. December 2015 08:11

Latest Emerging Market Liquidity readings confirm another set of poor numbers for end-November 2015. The Emerging Market component of our broader GLI™ series (Global Liquidity Index) remains soft at a sub-par index level of 34.2 (‘normalised’ range 0-100).

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Global View December 2015: China's 'New' New Exchange Rate Regime

by Michael J. Howell14. December 2015 14:05

The PBoC [China’s People's Bank] has just announced a new exchange rate index. The Market is jumping to the conclusion they will target this. The exchange rate basket comprises approximately one-third US$ and related currencies; 27% European units; 14% commodity-related currencies and 27% other Asian units.

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Global Liquidity Latest, December 2015

by Michael J. Howell11. December 2015 18:11

The November 2015 GLI™ (Global Liquidity Index) fell back to a reading of 44.5 (‘normal’ range 0-100) from a revised up 47.6 index for end-October. The GLI™ has been consistently below the neutral 50-index level since December 2014. GLI™ readings of between 40-50 indicate ‘tight liquidity’ and sluggish growth, but values below 30 are typically associated with economic recessions and bear markets in risk assets. The Global Liquidity picture is not supportive for risk assets and warns investors to remain wary

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Global View December 2015: Emerging Markets in 2016…Yes But No

by Michael J. Howell2. December 2015 18:40

After more than five years of underperformance, it must be Buggin’s turn for Emerging Markets to excel in 2016? We agree that the positives are slowly coming together, but based on liquidity data we may still be a few months away from returning to EM assets. One reliable indicator is the excess of EM over DM liquidity and this is still in negative territory. Another is the risk positioning of investors in EM assets: despite the large sell-off over the past 12 months, it would appear from the data that investors’ risk appetite still looks high, on average.

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Global Liquidity Conditions (Risk) Emerging Markets, November 2015

by Michael J. Howell30. November 2015 15:57

Asian markets head the risk rankings 

The October bounce in equity markets and associated jump in the Exposure Risk Index to 38.0 were more than offset by the pick-up in liquidity. Financing Risk fell to 70.7: better than the year’s high of 79.4 recorded in September but still too high. Asia is the problem.

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