Column: Markets not braced for Japanese, Swiss cenbank liquidity drain

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If estimates that world markets face a record $4 trillion liquidity drain over the next 18 months are even close to accurate, hold on to your hats.

That's how much analysts at Morgan Stanley reckon G4 central banks - the U.S. Federal Reserve, European Central Bank, Bank of Japan and Bank of England - will shrink their balance sheets by, via quantitative tightening , by the end of next year.

The SNB's balance sheet stands at around $1 trillion, up from around $200 billion in 2010. That's an average of around $70 billion injected annually into world markets that could now disappear. "The SNB and BOJ have contributed a very significant liquidity injection over the years that has led to large inflows into asset markets. If it were to stop, for whatever reason, that would be very dramatic," said Jens Nordvig, founder and CEO of Exante Data.Japan's contribution to global market liquidity - via the BOJ's unparalleled balance sheet expansion, and Japanese investors' purchases of overseas assets - cannot be overstated.

Source: Financial Digest (financialdigest.net)

 

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