PBOC Adding Liquidity Again!

Retail Sales up

Source: Reuters

Once again, when we dive in and look at what really matters, well it always seems to us that central banks are by far the largest contributors to global liquidity. Well, the PBOC cut their RRR by another 25bp last night, this reduction in bank reserves requirement allows liquidity to be released upon the markets, where it is levered up and spread throughout the globe. So if we take the estimated $69 Billion and lever that 10x well that’s some juicy $690 Billion to toss around. Most notably, right into the Nikkei first and then across the world!

Anyway this seems to be the case for the equity risk back on today, it totally muted the ECBs rate hike which will probably the last by them as the Euro did not like it one bit! As far as our own FRB, well let’s just say, they will be hard pressed to continue hiking in this environment where their core inflation metrics are not rising any longer.

We also have the UAW threatening to strike so, yea oil is up and that too is a stealth tax on consumers, so a lot to digest. Retail sales were up better than expected and MoM PPI was 0.7% expecting 0.4% however that news was all trumped by the PBOC liquidity injection and markets were once again off to the races. Here is the Nikkei, jumping right out of the gate and firmly above the 32808 prior resistance for now:

Source: CQG, Magnelibra

We don’t often comment on the Russell2k Index as its been such a laggard, however we are starting to see signs of holding up here. Now of course the broader market has not kept up with our MEGA8s, but something about this chart tells us that diversification may begin here into these beleaguered sectors of value. What we like about this chart and mind you this is Sept. contract is that the baseline support to us is clear, that is 1831 area, translated into the Dec. contract would be about 1850 area:

Source: CQG, Magnelibra