The Daily Fix - Funding and liquidity risk, the real driver of volatility [Video]

Chris Weston Pepperstone

Rather than put out a detailed written narrative, I feel the best way to portray such an important issue and one that needs to be on the radar, is through a short video.

In the video, I look at what is the real issue at hand – that being liquidity and funding stress materialising through the financial system. If liquidity is the oxygen within the financial markets, then lower liquidity should be a genuine consideration. It is hugely under-reported in financial media, predominantly as it is just such a complicated subject, and involves markets many are just not familiar with. However, these markets are the very essence and plumbing that are at the heart of global financial markets and guide the cost of loans and the price of money.

If Quantitative Easing (QE) was designed to create excess liquidity to flatten yield curves, boost investment and asset prices, with the result being inflation. Then, the effects of Quantitative Tightening (QT), which is real, is now in full force. Here, we are seeing capital flowing out of emerging markets for some time, and now US funding markets are moving higher, and this is causing volatility to pick-up.

Author

Chris Weston

Pepperstone

Chris Weston recently joined Pepperstone as Head of Research.

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