The New Era Of "Quantitative Tightening" Has Begun To Approach

The change of the central bank's external reserves clearly reflects this historic change.

In the two quarter of this year, China's foreign exchange reserves declined for the four consecutive quarter, from the peak of $3 trillion and 990 billion in 2014 to 3 trillion and 650 billion US dollars.

What will this mean for the global market? Deutsche Bank noted that the declining external reserves will lead to an increase in the bond market yield and the appreciation of the US dollar against the euro and yen.

The central bank is the master of this market.

If the central bank's easing policy has pushed the global market "double bonds" since the financial crisis, then a new era has arrived as the trend begins to reverse.

According to IMF data, global central banks

It has fallen from the peak of US $11 trillion and 980 billion in the middle of last year to US $11 trillion and 430 billion in the first quarter of this year (the figure below is from IMF, compiled by Bloomberg).

The Wall Street news has been analyzed in many articles before. There are many reasons behind it, including the global economic slowdown, the devaluation of China's RMB, the Fed's expectation of increasing interest rates, the collapse of the oil dollar, the face of the Swiss central bank, and so on.

These events require central banks to use them.

To resist capital outflow or manage exchange rates.

But no matter what the reason is, the decline in foreign exchange reserves means that the funds entering the financial system will not rise or fall.

The liquidity crisis.

The recent global market turmoil is closely related to this.

As Deutsche Bank analyst George Saravelos and his colleagues have said, the world is entering a new era of "quantitative tightening".

"After 20 years of continuous growth, we expect that the reserves of the Central Bank of the world will remain stable at most, and more likely to continue to decline in the next few years."

If the above Bloomberg chart has not yet shown long-term trends, the following picture of Deutsche Bank clearly shows the reversal of global reserve growth.

Deutsche said the era of so-called "global inflation" has ended and the world is entering QT.

This will lead to a systemic liquidity decline worldwide, leading to a revaluation of asset prices previously pushed up by liquidity.

The Canadian investment bank BMO Capital Market's research perfectly verified this "asset price revaluation".

The bank's research found that, in the second half of last year, the global central bank's external reserves began to slide, and the sensitive bond market also fell synchronously. Although the stock market reaction was lagging behind, it also began to drastically adjust in the near future.