2013: Big Questions For The Big Consensus

by Michael J. Howell19. December 2012 15:41

The first flush of November liquidity data allows us to reassess 2013 prospects. Hard evidence of extra cash inflows are thin. Latest data show the aggregate GLI (Global Liquidity Index) slipping back to 46.5 from a value of 57.0 in October, 2012 ('normal' range 0-100). The bulk of this setback came from lower Central Bank Liquidity in both the Eurozone and Japan in November. BoJ liquidity injections measured at an index value of 27.9 are proving remarkably weak in the face of persistent criticism of its policy and expectations that its hand will be 'forced' towards greater ease after the early December Election. Given that latest capital flow data highlight a sharp net outflow of money from Japan, this fact by itself would normally (and may be currently does) signal a domestic monetary tightening in response. Therefore, talk of a further flood of Yen from re-starting the printing presses could prove significant and highly disturbing for the forex and JGB markets in 2013. The long-threatened sell-off in JGBs could prove the key event for global bonds because if Japan can escape from deflation, so can the other economies.

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Global Liquidity Update

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