The Fed has gushed trillions into the short-term money markets in an attempt to fill what appears to be a bottomless pit and now Treasury and the government are discussing direct loans to businesses and banks have used the discount window en masse "to avoid any stigma"
As one veteran trader - who has seen a few cycles, as opposed to just trading the last 10 years uptrend - exclaimed:
"Something is very wrong," in the short-term liquidity markets.
He is not wrong.
The Dollar shortage is exploding to crisis levels as - despite unlimited Fed swap lines - global basis swaps are soaring..
And as that dollar shortage builds, so the dollar index is manically bid in a scramble for liquidity (and all other assets are sold - including gold and bonds)...
“Funding tensions and the direction of U.S. stocks will largely dictate movement for the G-10 currencies in the short run,” according to Shaun Osborne, chief foreign exchange strategist at Scotiabank
As TD Economics warns:
Shortly after the collapse in the stock market into bear territory in December 2018, we produced analysis to argue against fearing stock market volatility. Granted the recent rout that dialed the S&P 500 Index back to late 2018 levels in a short period is not common. The sharp move corresponds to a 7 standard deviation from historical norms.However, our eyebrows have been raised at the broadening of financial stress across multiple bond, credit, liquidity and corporate indicators. This is a cause for concern of a possible larger negative credit-event.
And the pace of tightening in financial conditions must be terrifying The Fed...
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