Despite slightly firmer liquidity data in May, driven largely by the US, the broader picture still points to World financial markets sitting late in the Speculation quadrant. This regime is typically associated with low returns and high volatility, making it a time to reduce risk exposure. Cycles matter: the 5–6-year Global Liquidity cycle has peaked and it is unlikely to bottom before late-2027. It is also a phase in which bonds tend to sell off, yield curves bearishly flatten and commodities continue to outperform.
Our latest view is grounded in two developments: (1) the diversion of financial liquidity into capex and stronger real-economy activity, and (2) the abrupt reversal in Chinese liquidity. Recent falls in gold and cryptocurrency prices appear to reinforce that message. Looking ahead, we argue that capex booms are inflationary. That brings the first FOMC meeting under new Fed Chair Kevin Warsh into sharp focus: our view is that he may prove to be a genuinely ‘hard money’ Fed chair. If that is right, it would reinforce the downtrend in the Global Liquidity cycle and potentially strengthen the US dollar.
