Matt King – Page 5 – Satori Insights

What role for liquidity in 2025?

It is tempting to look at the performance of US equities in 2H24 and conclude that central bank liquidity no longer matters for markets
But a closer examination of both other markets and shorter timescales suggests this would be a mistake
It instead highlights the predominant role currently being played by fund flows and US exceptionalism
While it is possible to paint scenarios where liquidity contributes to a melt-up in risk in early 2025, on balance we see it as one of a number of reasons to be skeptical of the bullish consensus

Many fundamental indicators show a sudden deterioration
In combination with markets’ Panglossian interpretation of prospects under Trump, these represent reasons to take profit
Too much of markets’ performance comes from a fiscally-driven surge in fund flows

Trump’s triumph is testament not only to the inadequacies of the Democratic campaign and the electorate’s dislike of inflation, but to the popularity of populism globally
Trump trades likely to continue at least until inauguration, and conceivably thereafter – unless a bond rout stops them first
The right places to position are America-first trades which will benefit from – or at least withstand – higher term premia

Full replay of 16 Oct webinar
Markets’ aggressive pricing of a soft landing is matched only by central banks’ determination to provide it
Yet their dovishness masks a switch from rate tightening and balance sheet easing to rate easing and balance sheet tightening
The resultant uncertainty is largely reflected in rates – but leaves opportunities in other markets
Open to clients with Group Webinar or One-on-One subscriptions; Read-only clients have access to first section only

Free excerpt from 16 Oct webinar
Markets’ aggressive pricing of a soft landing is matched only by central banks’ determination to provide it
Yet their dovishness masks a switch from rate tightening and balance sheet easing to rate easing and balance sheet tightening
The resultant uncertainty is largely reflected in rates – but leaves opportunities in other markets
Available to all; full replay available only to clients with Group Webinar or One-on-One subscriptions.

Markets’ aggressive pricing of a soft landing is matched only by central banks’ determination to provide it
Yet their dovishness masks a switch from rate tightening and balance sheet easing to rate easing and balance sheet tightening
The resultant uncertainty is largely reflected in rates – but leaves opportunities in other markets

The 25 vs 50 rate cut debate has unsurprisingly been focused on the economy
But the greater importance lies in the signal the Fed would be sending to markets
Leading with a larger move risks reigniting financial exuberance

Over the past week central banks drained $300bn in liquidity: as much as in April and more than in August
While this was partially reflected in the post-Labor Day selloff, the risk is of more to come
Resilient fund inflows are a partial panacea, but risk simply lagging