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Macro & Markets: Massive USD Liquidity Drain Coming Up
The combined effects of less T-bills, BTFP maturities and QT will hit US Bank Reserves hard with a frontloaded 600bn reduction next quarter. The effect will be felt across most markets we believe. US equity markets have been setting new highs despite higher rates and an ongoing balance sheet reduction from the Fed. While much of that strength can be explained by strong consumer demand, corporate earnings and a rampant belief that AI will transform the megatech-companies to godlike entities, there is also another factor at play. Increasing excess liquidity in the US banking sector since early 2023 has made sure there ... (full story)