Global Liquidity Has Turned Lower: The End of Easy Money?
Three narratives dominate markets: (1) the impact of presumptive Fed Chair Kevin Warsh; (2) the ‘Great Debasement’ trade and (3) Asian capital flows vis-à-vis gold, the US dollar and global bonds. We consider the first is at best neutral for risk markets; the second is fake and the third is ultimately bullish for gold and Asian markets, especially China.
Against this backdrop, investors face a late-cycle, ‘Speculative’ regime. The underlying slowdown in Global Liquidity continued through January 2026 despite a blip higher in several of our indexes. Note to avoid confusion, these indexes measure growth, and growth slowdown, not yet an absolute fall in Global Liquidity. The overall Global Liquidity Index (GLI ) fell from 54.8 to 41.7 (range 0-100), largely because of choppiness in Chinese Liquidity conditions. After a jump in December, the pace of People’s Bank Liquidity injections fell back through January. Partly offsetting this move, the US Fed’s successful new RMP (Reserve Management Purchases) stilled the turbulent repo markets and helped push our Fed Liquidity index up to 61.8 from 55.5, so partially reversing the recent drops in US Liquidity.
