GlossaryGlobal Liquidity Index
Global Liquidity Index
An approximation of global liquidity from its US share: US M2 money supply plus the Fed's balance sheet total, in trillions of US dollars, as a line over the price. Optionally with a lead or as a yearly rate.
How to read it
- Level: If the line rises, US liquidity is growing. Read over months, that is a tailwind for risk assets.
- Yearly rate: Above zero, the aggregate is growing compared with the previous year. You see turning points in the growth rate earlier than in the level.
- Lead: This lets you test the thesis that liquidity leads the price by about one quarter. If the line and the price line up better with the lead than without it, that supports the thesis for the chosen period.
Good to know
- This is only the US block, about a quarter of a global aggregate. Outflows via the Treasury's account (TGA) and reverse repo are not subtracted, so the curve runs smoother than actual liquidity in phases like 2022. The net calculation with the ECB and the Bank of Japan is shown by mantacharts: Global Liquidity.
- Money supply and central bank balance sheet partly overlap; cash counts in both.
- The lead counts candles. On charts without weekend trading, 90 candles are a little over four months. Even at 0 days, the lead shifts by two candles when it is switched on.
- M2 comes out monthly, the Fed balance sheet weekly, both with a delay. Meant for 1D to 1W.