A measure of U.S. financial liquidity whose declines foreshadowed two of the decade’s worst equity routs is flashing alarms even before the Federal Reserve embarks on its planned winding down of asset purchases.

The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account.

The shortfall comes from an expanding economy that’s quickly depleting the nation’s available money. The deficit could become a problem for markets at a time when excess liquidity is seen as underpinning rallies in everything from Bitcoin to meme stocks.

“Put another way, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself,” Doug Ramsey, Leuthold Group’s...

By Samuel Wilkes May 12, 2021, Risk The UK Treasury’s decision to scrap rules that allow market users to clear listed derivatives at a central counterparty of their choice has been met with disappointment among a coalition of the rules’ supporters.

“This is especially disappointing because both [financial services minister] John Glenn and [Bank of England governor] Andrew Bailey had set out stalls this year and last around the UK paying regard to the principles of openness, competition and resilience,” says Alex McDonald, chief executive of the European Venues and Intermediaries Association, a lobby group.full article

By Huw Jones May 12, 2021, Reuters French markets watchdog AMF said on Wednesday it expects Britain to take advantage of Brexit to diverge from European Union financial rules in an effort to make the City of London more attractive to investors.

The City has been largely cut off from the EU as Brussels has yet to decide on how much direct access it will grant Britain in financial services, a sector not covered by the bloc’s post-Brexit trade deal with the UK.full article

By Wendy Lisney May 12, 2021, Global Investor Group Europe must avoid dependency on the UK as it strives to develop a framework of regulatory cooperation once the extended equivalence period ends in June 2022, according the European Union’s commissioner for financial services, financial stability and capital markets.

“It’s clear that London will remain an important financial center and that is not a problem of course for the European Union,” Mairead McGuinness said during the International Swaps and Derivatives Association’s three-day AGM event.full article

By Oliver Wade May 12, 2021, Global Investor Group The UK’s departure from the European Union has “clearly reduced” the efficiency of the European repo market, according to repo market veteran Richard Comotto.

Data from Europe’s Securities Financing Transactions Regulation (SFTR) suggested that the market has not seen much growth over the past year, and Comotto noted that around 40% of the market “split off” when the UK left the bloc.full article

By Wendy Lisney May 11, 2021, Global Investor Group Provisions in China’s draft Futures Law addressing netting and collateral regimes, seen as significant barriers to foreign participation in the country’s derivatives markets, are set to be bring certainty to foreign participants, according to a panelist.

“It’s the first time that we have at the highest national level a specific provision not only dealing with close-out netting for OTC derivatives, but also specific articles dealing with the application of a security arrangement for derivatives transactions,” said Minny Sui, a partner at law firm King & Wood Mallesons, during a panel discussion.full article

By Huw Jones May 11, 2021, Reuters Markets must not replace the tarnished Libor interest rate with alternatives that could end up replicating the same flaws that made it easy for banks to manipulate, Bank of England Governor Andrew Bailey said on Tuesday.The London Interbank Offered Rate is being scrapped at the end of December, though the publication of some dollar denominations continue until mid-2023 for outstanding contracts.full article

By Paul Golden May 6, 2021, Euromoney The end of Libor – which has been looming over the financial markets for years – is now imminent.

The UK’s Financial Conduct Authority (FCA) has confirmed that sterling, euro, Swiss franc and Japanese yen Libor will cease after December 31, as will one-week and two-month US dollar Libor.full article

By Wendy Lisney May 11, 2021, Global Investor Group Any transfer of cleared derivatives to build up clearing capacity in Europe should be on a voluntary basis, and achieved through the development of competitive and efficient and resilient market infrastructure in Europe, according to the head of FIA in Europe Bruce Savage.

The European Commission should allow enough time to support a voluntary and market-driven shift of cleared derivatives from the UK to the EU, Savage added in an interview with Global Investor.full article

By Huw Jones May 11, 2021, Reuters The fragmentation of Europe’s capital market due to Brexit has increased operating costs for banks to the point where some struggle to make their UK and EU hubs viable, a report showed on Tuesday.

Many banks that used London as a base for serving the European Union have opened hubs in the bloc after Britain’s departure from the EU left the City of London largely cut off from the continent.full article

By Silla Brush May 11, 2021, Bloomberg The City of London lost 2.3 trillion pounds ($3.3 trillion) of its lucrative derivatives trading business in March alone, with Wall Street trading platforms gaining the most from Brexit.

U.S. swap-execution facilities took market share in trades in euros, pounds and dollars at London’s expense that month compared to last July, while venues in the European Union also gained, according to an estimate by Deloitte and IHS Markit Ltd.full article

For all the cash sloshing around in the financial system, many investors have been reluctant to scoop up Treasury bills in recent offerings.

That apathy stems from uncertainty surrounding the so-called X-date, when the Treasury is set to exhaust its borrowing authority under the debt ceiling. There’s also a perceived degree of confusion from the department on matters of supply, and the fact that investors are parking a record

THE USED-CAR salesman occupies a distinctive, if rather unflattering, place in American culture. In “The Grapes of Wrath”, John Steinbeck’s classic novel set in the Depression, sleazy salesmen prey on miserable farmers. “Cadillac Man”, a film from 1990, features a fast-talking merchant with a bevy of mistresses. These depictions, and many others, are unfair to most of the hard-working types on car lots. But in recent months such salesmen have occupied a distinctive and unflattering place in America’s economy, as avatars of worryingly rapid inflation.