Global Liquidity Watch: Weekly Update

Key Takeaways

• Global liquidity rose to $188.1 trillion, a modest increase.
• Fed liquidity expansion and weaker dollar drove the uptick.
• Shadow Monetary Base grew, but BoJ QT and ECB/BoE weakness limit flow.
• Asian emerging markets regained pre‑conflict risk appetite; US and Eurozone stay neutral.
• Bond volatility fell, supporting liquidity despite constrained central‑bank support.

Pulse Analysis

The latest Global Liquidity Watch shows the world’s money supply inching upward to $188.1 trillion, a figure that reflects a delicate balance of forces. A softer U.S. dollar has effectively increased the dollar‑denominated value of foreign assets, while the Federal Reserve’s continued balance‑sheet expansion adds a modest layer of cash to the system. Lower bond‑market volatility further eases funding pressures, allowing investors to re‑enter risk‑on positions without the sharp price swings that characterized the previous quarter.

Despite the headline‑level rise, underlying momentum remains fragile. The Shadow Monetary Base—an indicator of non‑central‑bank money creation—has grown, yet its pace is throttled by the Bank of Japan’s aggressive quantitative tightening, the European Central Bank and Bank of England’s limited stimulus, and a pause in People’s Bank of China liquidity injections. These policy headwinds keep the overall liquidity environment tighter than the headline number suggests, raising concerns for credit‑dependent sectors that rely on abundant funding.

Risk appetite, however, is showing signs of recovery. Developed markets and Asian emerging economies have reclaimed pre‑conflict risk levels, driven by improving trade flows and stabilising commodity prices. In contrast, the United States and Eurozone remain cautious, reflecting lingering inflation worries and uncertain fiscal trajectories. For investors, the key takeaway is to monitor central‑bank policy shifts closely; any further tightening could quickly reverse the modest liquidity gains and dampen the renewed market optimism.