In today’s briefing:
- Two Things Matter Far More To The World Economy Than The Ukraine Conflict
- Sanctions Reduce Dollar Liquidity and Collateral Quality as Stress Emerges in Funding Markets
Two Things Matter Far More To The World Economy Than The Ukraine Conflict
- Ukraine is a major negative for the World, but is may be eclipsed by China and Oil?
- China shows no signs of easing her policy and every sign of maintaining a tight monetary stance. Stability is the watchword.
- But don’t forget higher oil prices. US$130/ bbl oil could smash Global Liquidity lower by up to 30%. This isn’t bullish!
Sanctions Reduce Dollar Liquidity and Collateral Quality as Stress Emerges in Funding Markets
- Geopolitical tensions have undermined confidence in risky assets and reduced liquidity in funding markets. The Fed would normally respond to these, but policy settings are still about to be tightened.
- The freezing of Russian central bank assets lowers global liquidity by reducing the supply of dollars in the FX swap market. Normally, the Fed will respond via currency swap lines.
- Funding in commodity markets based on Russian-originated collateral has been impacted by sanctions, which produce similar outcomes to protectionism. Stagflation is the major challenge for central banks in 2022.
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