GMM will be going dark for a few weeks.
Watch This Space
We are waiting anxiously for Monday’s U.S. Treasury release of the TIC data, particularly the major foreign holdings of U.S. Treasury securities. We are closely monitoring the foreign official flows into/out of the U.S. Treasury market. March will be the first data point after Western nations sanctioned the Russian Central Bank at the end of February.
Foreign Central banks, which are not price or market-sensitive with their securities holdings, are now net sellers of Treasuries, albeit only slightly, with their holdings hovering around $4 trillion since 2012.. At the end of the aughts, central banks owned almost 75 percent of total foreign investments. They were recycling their reserves from current account surpluses back into the Treasury market to protect exchange rates from strengthening and becoming overvalued. Today, foreign central banks hold a little over 50 percent.
China’s holdings peaked in November 2012 at $1.3 trillion and are down about 20 percent to $1.05 trillion in February. We suspect China has accelerated its sales after the West sanctioned the Russian Central Bank. We believe the Chinese may perceive it to be foolish to keep $1 trillion of their $3 trillion in reserves in a country they view as an increasingly hostile power. Stay tuned.
New World Order
Russia’s invasion of Ukraine will likely usher in a multi-block New World Order with contracting international trade and capital flows, reversing many of the disinflationary forces of the past 25 years.
The numbers to monitor in the TIC data on Monday to realize if the “big bang” has commenced are China’s and foreign official holdings. We suspect both will be lower.
See you in a few weeks.