Why are equities markets on a tear again?

Crazy amounts of liquidity.

Consider the additional liquidity and accommodation injected over the past 25 days:

• $134 billion - ‘temporary’ liquidity injected by the US Federal Reserve on October 24.

• $60 billion - US Federal Reserve purchases of short term treasuries, which will recur each month.

• $22 billion (Euro 20 billion) - on 1 November, the ECB recommenced monthly asset purchases which will continue for as long as is necessary to hit the ECB’s inflation goal, and at the same time a cut to the deposit rate to -0.5%.

• $25.7 billion (180 billion yuan) - injected into the Chinese inter-bank market today, and coupled with a decrease in the seven-day reverse repurchase rate to 2.5% from 2.55%, the first cut in 4 years.

You will note in the above list that an equivalent of around $82 billion per month of treasuries and Euro assets will be purchased on a monthly basis, over and above the other $160 injected by the US Fed and the PBOC. In total, that’s around $1.1 trillion over a 12 month period.

Adding $1.1 trillion to the combined $19.6 trillion balance sheets of the above centrals would take the total to $20.7 trillion. I think that’s a record.

Embarrassingly for the bankers, very little reinvestment and inflation has resurfaced from these lakes - it’s as though they’ve iced over.

But one thing’s for sure - this liquidity is like liquid hydrogen for equities.

Stay tuned.

Mike.

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