Key Points
- Fed liquidity has surged by $395 billion since the start of the year, marking the largest ten-day hike in two years.
- This could potentially spark interest in riskier assets like cryptocurrencies and stocks.
The start of the year has seen a surge in Fed liquidity by $395 billion, the largest ten-day hike in two years. This could possibly reignite interest in riskier assets.
Recent market-wide crashes have highlighted a growing ‘inverse’ correlation between macro trends and riskier assets. If the U.S. economy continues to show strength, the crypto market could take an unexpected turn.
Watching the U.S. Economic Calendar
Given this, monitoring the U.S. economic calendar is more crucial than ever. The Dollar Index (DXY) remains firmly above 109 and the 10-year Treasury yield has soared to its highest level in 14 months. This suggests that a shift towards riskier assets like crypto or stocks might not be imminent.
However, the Net Federal Reserve liquidity has increased by about $395 billion since the beginning of the year. This high liquidity could indicate a potential devaluation of the U.S. dollar. If the dollar weakens, Treasuries may become less appealing.
Market Speculations and Cautions
Speculation is rising about liquidity injections from the Treasury General Account (TGA). As the U.S. approaches its debt ceiling, the Treasury may release significant liquidity into the market, shaking things up further.
The surge in liquidity from both the Fed and U.S. government injects fresh capital into the market. However, with the debt ceiling fast approaching, investors may turn towards safer, more stable assets.
All eyes are now on the new administration. Will they push through tax cuts to unlock even more liquidity? If they do, it could devalue the dollar and make Treasuries less appealing. The pressure’s on for the administration to deliver on those promises. If not, 2025 could be a wild ride for riskier markets.
