Il particolare che a tutti è sfuggito

Molti (noi di Recce’d siamo tra le eccezioni) nella settimana appena conclusa sono stati colpiti dalla reazione della Borsa di New York alle notizie di un rischio di guerra aperta tra Stati Uniti ed IRAN, di cui oggi parliamo anche nella pagina settimana di ricapitolazione su questo sito.

Fin dal primo giorno, a proposito di questa vicenda, noi abbiamo scritto e detto ai Clienti di attendere e vedere: sarebbe stato del tutto sbagliato correre a conclusioni prima del tempo.

In particolare non ci sorprende che da parte dell’IRAN sia stata adotta una strategia di attesa: ciò che Trump cercava era proprio una giustificazione per alzare ulteriormente i toni dello scontro, e (dal loro punto di vista) giustamente gli iraniani non sono cascati in questa trappola ed hanno preso altro tempo. Temporeggiare in alcuni casi è la tattica vincente.

Tutto ciò detto, sarebbe un errore gravissimo ignorare il fatto che la reazione della Borsa di New York, la settimana scorsa, va spiegata anche con riferimento ad altri fattori, oltre che alla geopolitica.

In particolare, noi ci riferiamo alla reazione della Federal Reserve, che (dopo avere rallentato per due settimane) proprio negli ultimi cinque giorni di mercato ha rimesso l’acceleratore, sollecitata dalle stesse banche USA, riaprendo i rubinetti della liquidità sul mercato americano dei fondi interbancari.

Siamo più che certi (e non siamo solo noi a pensarlo) che non si è trattato di una coincidenza temporale.

Per un maggiore dettaglio di informazioni, abbiamo selezionato per voi il brano che segue qui sotto, le cui conclusioni sono a nostro giudizio particolarmente azzeccate.

Two days after we reported that a disturbance may be brewing below the surface of the repo market again, after the first oversubscribed term repo in over three weeks, when on Jan 7 the Fed received $41.1BN in submissions for its $35BN two week repo, we got another indication just how strong the market's addition to the Fed's easy repo money has become, when moments ago the Fed announced that its latest 2-week term repo operation was also almost oversubscribed, as $34.3BN in securities ($23.3BN in TSYs, $11BN in MBS) were submitted for today's $35 billion operation, as dealers continue to scramble to the Fed for liquidity which they are no longer using for merely "regulatory" year-end purposes (since it is no longer year-end obviously), but are instead using it to pump markets directly.

Today's operation, which was just shy of the maximum $35BN allowed, was the second highest term repo since Dec 16, and suggests that as repos are now maturing at a rapid burst, dealers remain as desperate as ever to roll this liquidity into newer term operations.

And just in case there was any doubt that the liquidity shortage isn't getting better, moments later the Fed announced that in its daily Overnight repo operation, it also accepted $48.825BN in securities ($24.2BN TSYs, $24.625BN in MBS) ... for a total liquidity injection of just over $83 billion!

The problem, as Skyrm explained, is that the market had gotten addicted to the easy Fed liquidity unleashed in September (via temporary repo ops), and then again in October (via permanent T-Bill purchases): "it's easy to see how the Repo market can get addicted to easy cash from the Fed when the stop-out rates for the RP operations are 1.55% - behind the offered side of the market." But, as the repo strategist added, as the Fed keeps injecting cash, the market gets used to it.

Which is great in the short-term as it sends risk assets soaring, but become a major issue over the long-term: "The long-term problem is that the some investor cash (real money cash) that was once going into the Repo market is now going elsewhere", Skyrm explains.

Indeed, the problem is that repo rates are trading in the lower end of the fed funds target range. When GC rates were higher in the range, Repo general collateral, as an investment, was more competitive than other overnight rates. But now that cash has gone to other markets.

In short, just as the market got addicted to QE and the result was a 20% drop in the S&P in late 2018 when markets freaked out about Quantitative Tightening, the Fed's shrinking balance sheet, and declining liquidity, Skyrm cautions that "it will take pain to wean the Repo market off of cheap Fed cash" since "it's a circle" which can be described as follows:

For the Fed to end daily RP ops, they need outside cash to come back into the Repo market. For the Repo market to attract cash, Repo rates need to move higher. For rates to move higher, the Fed needs to stop RP ops.

The problem is that stopping RP ops could spark another repo market crisis, especially with $259BN in liquidity pumped currently - more than at year end - via Repo. It also means that the Fed is now unilaterally blowing a market bubble with its repo and "NOT QE" injections, and yet the longer it does so the more impossible it becomes for the Fed to extricate itself from the liquidity pathway without causing a crash.

Or stated simply, the longer the Fed avoids pulling the repo liquidity band-aid, the bigger the market fall when (if) it finally does. The question then becomes whether Powell can keep pushing on the repo string until the November election, because a market crash in the months preceding it, especially since it will be of the Fed's own doing, will result in a very angry president