Saxo Bank vurderer, om der er risiko for en likviditetskrise som under finanskrisen, ligesom der var en stramning i september 2019. Men banken hæfter sig ved, at pengepolitikken i USA er ekspansiv og udtrykker en sund styring af pengepoltikken. Derfor er der ingen grund til at frygte en likviditetskrise. Derimod kan valget i USA ende i en forfatningskrise.
Imminent liquidity squeeze or just prudent money management ?
Summary: The recent sell-off in emerging markets combined with higher real rates, stronger dollar and stocks turning red all around the world have been interpreted by many investors as the sign there is not enough liquidity added by the Federal Reserve. We examine in this article whether or not we are about to face a new liquidity squeeze, as it was the case in Q3 2019 for instance, and what could be the implications of higher financial stress in the coming months for investors.
For policymakers and investors, a liquidity squeeze, which is characterized by difficulties to have access to money in the short term, is the worst-case scenario in a period of weak growth prospects and looming economic risks due to the pandemic. It could seriously jeopardize the recovery and cause distortions in the entire financial system.
The last time a major liquidity squeeze has happened in the repo market, in September 2019, the Federal Reserve had to intervene for an unprecedented 10-month period to successfully tame volatile funding costs.
Are we nowadays on the bridge of a similar turmoil? It we look at the repo market, there is no difficulty to access to money in the short-term. Among all the things the Federal Reserve has to worry about, the repo market is clearly, and by large, no longer one of them.
More important is the fact that the overall monetary conditions in the United States are still very expansionist.
As the below chart well represents, the overall monetary conditions in the United States are still largely expansionist, though less than during the 2008 crisis.
Based on that, it would be mistaken to suggest there is a relationship between few isolated events on the high yield market, which is always more complicated to analyze due to the higher risk profile of companies which refinance there, and the access to overall liquidity in the short term. There is therefore certainly a better explanation to the recent fly to safe havens and the rise in real rates.
In our view, given current very accommodative overall monetary conditions and the absence of signs of financial stress in the short term borrowing markets (notably the widely watched repo market), we believe the recent events are not consistent with the risk of imminent liquidity squeeze.
It rather reflects prudent money management from asset managers and asset owners putting money on the side or in safe assets to be prepared to face the risks associated with the upcoming U.S. presidential election. Many investors, rightly or not, are worried about the possibility of a contested election in case of irregularities. It could cause an institutional crisis and ultimately end up at the Supreme Court. The risk is real, and could obviously trigger a new market selloff, but we are not in the situation where we are about to face a wholesale carnage due to temporary credit freeze.
At the moment, there is no rational reason to fear a liquidity squeeze.
