The pace at which global liquidity has been expanding looks to be slowing. At the same time, we’ve seen risk assets rollover the last few weeks.

We noted earlier in the year how the reversal in liquidity trends back in October was a key catalyst behind the market’s hot start in 2023. Supporting evidence for this liquidity-driven rally included:

• Balance sheet expansion from major non-US central banks (notably the PBOC + BOJ)
• Weaker USD
• Strong credit growth (bank lending)
• Looser financial conditions
• Lower volatility (which increases liquidity via lower margin requirements)
• Short covering + investor repositioning (as many were underweight risk)
• Leadership of liquidity-sensitive groups (e.g. crypto, non-profitable tech, junkier credit, etc.)

Powell’s hawkish commentary on Capitol Hill has ripped through markets this week, adding insult to injury.

We’ll be breaking down the market’s reaction and what it means in this week’s Bull vs. Bear (live streaming at 230pm ET today).