#1214 Darius Dale | Central Banks Are Secretly Controlling Stock Prices?!

— Global liquidity has recovered significantly off late-2022 lows but growth has stalled in recent weeks, moving in the wrong direction.

— Central bank actions are the key inflection points in liquidity cycles; private-sector liquidity (commercial bank credit) is pro-cyclical and exacerbates trends set by public-sector policy.

— China's liquidity impulse is modestly negative but improving, with recent rate cuts by the PBOC expected to turn it positive in coming months.

— U.S. liquidity is likely to worsen due to quantitative tightening resumption, record budget deficits, and Treasury issuance as debt-ceiling restrictions ease.

— Eurozone and Japan face headwinds: ECB balance sheet runoff and potential yield curve control adjustments threaten to deepen negative liquidity impulses this summer.

— Five structural factors—record household/corporate cash, fixed-rate debt lock-in, manufacturing decline as employment share, labor hoarding, and tight labor markets—continue to support U.S. economic resilience despite recession fears.

— Bitcoin and S&P 500 have decoupled from global liquidity trends; both assets are trading at elevated multiples relative to the trailing-one-year Z-score of the global liquidity proxy.

— The three-month trailing momentum in global liquidity impulse has flattened after positive momentum in Q1 2023, with expectation of turning negative in coming months.

— U.S. budget deficit tracking at minus 8% of nominal GDP—the highest in non-recession periods.

— Median S&P 500 return in the year leading to recession across 12 post-war cycles: plus 16% (interquartile range 14–20%), suggesting further upside possible before downturn.

— Chinese inflation expectations in Japan currently diverge significantly; core CPI running 200 basis points above BOJ forecasts.

— Central bank liquidity cycles may drive near-term volatility this summer as U.S., Eurozone, and potentially Japan shift into tighter conditions while China eases; consider tactical rebalancing into weakness if corrections materialize.

— The recession most likely begins in Q4 2023 or Q1 2024, not immediately; asset markets typically rally aggressively into late-cycle peaks, suggesting buying dips rather than front-running a downturn.

— Monitor Treasury issuance and TGA (Treasury General Account) rebuild closely; resumption of full debt issuance after debt-ceiling pause will test bank reserve adequacy and mark quantitative tightening's return to full force.