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Business / Finance

The state of the US money market and dollar liquidity

Club traders sMart-Lab. We make money on the exchange. 30.04.2021 at 11:50

Club traders sMart-Lab. We make money on the exchange. / RSS channel

Last week, the Fed's balance sheet shrank by $ 40 billion

The blue line is the Fed's balance sheet from week to week.

The red line is the dynamics of the treasury balance.

Green line – dynamics of the balance of mortgage-backed securities.

The Fed has reduced the purchase of debt, both mortgage-backed and treasured.

Next, we will move on to the indicators of absorption (absorption) of dollar liquidity

The blue line is the US Treasury's account with the Federal Reserve. This week, the bill fell by $ 71 billion.

Red line – daily repos for non-residents. Last week, the demand for daily repos continued to decline, but the indicator remains much higher than the beginning of the year. The demand in the international market for dollars is holding up, and this is probably the result of the growth in the yield of long treasuries.

Earlier, I wrote that while the Ministry of Finance spends money from its account, it will be difficult for the dollar to enter a bullish trend, since liquidity flows from savings to expenses.

Important components of the money market that reflect the different state of dollar liquidity moved synchronously, but deposits in commercial banks declined more than cash in circulation

The blue line is an indicator of cash in circulation, plotted from year to year. In the past weeks, the indicator has decreased.

The red line-the indicator of deposits in the US financial system, also in annual dynamics-decreased to a greater extent. Here we should already take into account the high base of last year in terms of deposits.

This situation with the dynamics of the above indicators locally puts pressure on the dollar

The blue line is the ratio of deposits to cash, in fact, if we discard the nuances, it is one of the monetary multipliers. And we see that the indicator fell to new lows during the week, which affects the dollar exchange rate, which is marked with a red line.

So far, there are no chances for dollar bulls, but we will look further at the development of events.

By tradition, we will go to the review of the differentials of rates

The blue line is the most important, in my opinion, differential in the interest rate market, it is the difference between the reference and market rates, the indicator has decreased this week, signaling the easing of credit conditions, i.e. the market rate against the reference rate remains low.

The red line is a TED spread that reflects the demand for liquidity in the London international market (Libor). If the indicator is at minimum levels, it indicates an excess of dollars on the international market.

The green line is the difference between the yield of corporate 10-year bonds and the corresponding treasuries, the situation in the corporate debt market has stabilized below pre-crisis levels.

We will close the review with a look at the expected inflation and its dynamics this week, and the situation with the S&P500; index;

The blue line is the expected inflation and we see that in the past week the indicator has returned to its peaks, against the background of the Fed's reflationary rhetoric. Such dynamics of the indicator continues to put pressure on the dollar, and supports the financial market as a whole.

The red line is broad market quotes, the US stock market is entirely determined by reflationary expectations, and with inflation expectations rising, the index has returned to growth.


In my opinion, from the point of view of the US money market, the situation continues to be favorable for the continued growth of the stock and commodity markets, and also, we see that the US financial system has a surplus of dollars, which continues to put pressure on the DX rate.

So far, from the point of view of money market metrics, there is no tightening of credit conditions, and risk appetite remains at the achieved levels.

Only one signal from the above indicators indicates an increased demand for dollars – these are daily repos for non-residents, but the TED spread is still at minimum levels, which indicates the balance of demand/supply of dollars on the international market.


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