The effect of liquidity on markets is always a sequential process

We are seeing growing evidence of impending tightening by key Central Banks. Most investors are probably eyeing the dominant player, the US Federal Reserve.

US quantitative easing is formally shutting down and the Fed’s own lender of the last resort operations have dropped away significantly, while it has also pre-announced the phasing out of further debt monetisation. Our investment clock argues liquidity affects markets sequentially, starting with bonds and moving through credit and commodity markets to equities and real estate, and usually a year or two after troughs and peaks in liquidity. The Global Liquidity index peaked in early 2009. The onset of quantitative tightening comes in the context of a rebounding US dollar and confirmatio...