“Earnings don’t move the overall market… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” Stanley Druckenmiller
Global liquidity conditions, as measured by BofA Merrill Lynch’s Global Liquidity Tracker, are still firmly in negative territory since mid-2015 (bottom panel). The most recent data shows a steep drop related to Japan, with three of the four components (Japan, Euro Area, and Emerging Markets) now below zero. Though the US is fractionally positive at 0.75, the continual tightening of liquidity conditions abroad is the greatest risk currently, aligning with Yellen’s cautious remarks on raising rates.
