The abnormal fluctuation of SOFR at the end of the quarter is regarded as an important signal of liquidity crisis at the end of the balance sheet reduction cycle. Similar fluctuations also occurred on the eve of the end of the balance sheet reduction in 2019. JPM CEO said that the issue of stopping the balance sheet reduction has been put on the agenda. Generally speaking, the Federal Reserve will consider stopping the balance sheet reduction when the following conditions are met: 1. The excess liquidity shown by the reverse repurchase tool (RRP) is close to zero. At present, the indicator has fluctuated around 300 billion for several months, and theoretically there is room for further decline; 2. The size of the Federal Reserve's balance sheet has reached the preset target of 6.5 trillion, and it is still around 7 trillion. 3. The amplified fluctuation of SOFR at the end of the quarter suggests tight liquidity. Although it is unlikely that the balance sheet reduction will be stopped at the FOMC meeting in November, there is still some hope in December. It is expected that this opportunity will come within one to two quarters. In the long run, the new market bottoming process will begin after the balance sheet reduction stops, and then you can consider the layout of spot opportunities on dips.
The following misunderstandings should be noted: 1. After the balance sheet reduction is completed, quantitative easing may not occur immediately, and even the expansion of the balance sheet is not inevitable. Balance sheet reduction is only a means to bring the unconventional balance sheet size back to normal after the large-scale release of money, which means that if the economic environment is normal, there is no need to expand the balance sheet to start a new cycle. After the balance sheet expansion began in September 2019, it was not until March 2020 that the decision to start quantitative easing was made. The interval in between may be half a year or even longer. The expansion of the balance sheet during this period is not enough to generate a strong driving force on asset prices. Quantitative easing has always been an extraordinary measure in extraordinary times. At this stage, the economic environment in the United States does not have the conditions for implementing this policy. 2. In the early stage of interest rate cuts and when the balance sheet reduction was just over, liquidity was the most tense, which was a hotbed for the brewing of black swan events. During this period, high leverage operations are extremely risky.
Less than a month before the election, the Democratic Party is busy dealing with the election situation and has performed poorly in hurricane relief in several key swing states. At the same time, Musk appeared at Trump's speech, pushing Trump's approval rating to a lead of about 10 percentage points. As the target of cryptocurrency speculation, Trump's coming to power can have a short-term stimulus effect; while Harris's coming to power is more conducive to the continuity of policies, which may promote the formation of a long-term slow bull market in the US stock market, and the impact on Bitcoin is expected to be stable.#缩表 #扩表