Morgan Stanley analysts stated that with the implementation of quantitative easing by the Federal Reserve and a slowdown in bank lending, liquidity in the US financial markets is drying up.
Since the end of March 2024, the US money supply is estimated to have contracted by about $200 billion. The main factors contributing to this phenomenon are threefold: the Federal Reserve's continued quantitative tightening policy, increased usage of reverse repurchase agreements by the Federal Reserve, and a slowdown in US bank loan growth.
Analyst Nikolaos Panigirtzoglou and his team believe that liquidity has entered a &#34;mild contraction phase&#34;.
They stated that starting from the second quarter of 2024, US liquidity has entered a mild contraction phase, similar to that of 2022. The negative growth in money supply will pose a challenge to the future development of risk assets.
Since the beginning of this year, the S&amp;P 500 Index (SPX) has risen by 10%, while the Nasdaq Composite Index (COMP) has risen by 13%. At the same time, corporate and speculative investors have been behaving differently towards the US dollar. Corporates have started unwinding a significant amount of their short US dollar positions, while speculative investors have been unwinding a large number of their long US dollar positions.
As of now, the US Dollar Index (DXY) has risen by 3% this year

The JPMorgan Chase analyst team believes that liquidity is entering a "mild tightening phase," posing challenges to the development of risk assets

JPMorgan Chase: Be careful! Liquidity in the United States is starting to dry up