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Recession risk warning for 2019

Louis-Vincent Gave on Tech, Fed Balance Sheet, and More:

“In our system today, there are four central banks that matter a lot and have a disproportionate impact on global markets: the Fed, the Bank of Japan, the ECB, and People's Bank of China. Starting from really six months ago, we’ve gone from zero central banks tightening to now two, because (in addition to the Fed) the Chinese central bank is also tightening.”

“So, you have 2 out of 4 that are now tightening and 2 of out 4 that are still easing very aggressively. My guess is...when we move to 3 out of 4 that will most likely break the back of the markets. When does that happen? Most likely, I don't think it will be the BOJ, it'll be the ECB at the end of this year, beginning of next.”

On a similar note, Jeroen Blokland notes that global liquidity is close to a tipping point.

Central bank balance sheet aggregate

The point is, the "expansion of central bank balance sheets" reflext the extent of central bank money printing. That central bank money printing has caused asset price inflation. Therefore you should expect that as that which has lifted asset prices is taken away, asset prices are likely to fall. Therefore this is a measure to watch.

Our summary of this discussion is here.

Citi Research thinks this central bank balance sheet shrinkage could cause global asset prices to fall 25%.

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