July 8th, 2020
Daily new infections of COVID-19 are spiking in areas that were thought to have “flattened the curve” and moved past the worst of the pandemic, giving a global stock market rebound some pause. Oxford Economics notes that this is happening at a time when liquidity provision by the world’s central banks appears to be slowing. That would appear to be the case if one takes a glance at the U.S. central bank’s balance sheet. But the reduction isn’t happening because the Fed’s stopped its stimulus. It’s more to do with much lesser uptake of the swap lines and repo facilities it rolled out for global central banks and other market participants during the height of the dollar funding crunch in March. Lessening uptake since the crunch has eased has made the balance sheet shrink on a headline (total assets) basis.
Chart and commentary by Ritvik Carvalho
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