05 DECEMBER 2025
The chart below helps to explain the recent market volatility.
The net US liquidity indicator is a blunt tool that tracks how much money is washing around the financial system,
It combines the Federal Reserve balance sheet, the Treasury General Account (TGA) and the reverse repo facility.
A rising indicator reflects more money being pumped into the system, which typically boosts risk asset prices. The converse is also true.
The metric has recently fallen to a multi-year low; the result of a declining Fed balance sheet, a draining of the reverse repo facility and a spike in the TGA. The latter has had a big impact with the US government shutdown causing the Treasury department to save more and spend less for a multi-week period.
This has all culminated in a sharp tightening of financial conditions and a bout of market unrest.
Encouragingly, the Fed has announced the end of its balance sheet contraction and the TGA will start to bleed down with the US government shutdown now over. So liquidity conditions should soon stabilise and that would dampen the recent market headwind.
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