"World markets seem awash with cash again and it looks like spilling into 2014".
"Even though the U.S. Federal Reserve has kept its $85 billion-a-month of bond buying constant throughout, fevered speculation surrounding its easy money spigot has by itself dictated the massive ebb and flow of liquidity seen this year.
The rethink of Fed intentions after September 18 - when the central bank declined to cut back its asset purchases as expected - has raised all financial boats in one big wave.
Since the Fed demurred six weeks ago, the S&P500 index of top Wall St stocks has jumped 3.5 percent. So too have 10-year U.S. Treasury bonds. High-yield corporate "junk" bonds are also up more than 3 percent, as are gold and the euro. Even indices of the most esoteric and speculative 'frontier markets' have added more than 3 percent.
The global surge has been remarkable as an evaporation of this year's U.S. dollar's gains has removed huge pressure from emerging market currencies and, in turn, eased the strain on some $7.2 trillion of emerging central bank reserves. And given these reserves are largely banked in western bonds, a virtuous circle of liquidity appears to have formed.
And by pumping up the euro and Japanese yen, the retreating dollar has upped chances of further easing - quantitative or otherwise - by the Bank of Japan and European Central Bank.
The global liquidity pool - one seeded by central banks and supercharged by the markets themselves - seems to expand anew.
With the Fed speaking softly again, one-month U.S. Treasury bond volatility indices .MERMOVE have fallen to their lowest since May - half of June's peaks.
JPMorgan estimates its measure of "excess liquidity" in the global system is still surging into record territory, with global M2 aggregates up by $3 trillion, or 4.6 percent, so far this year, far outstripping a 2 percent global inflation rate.
Two thirds of that M2 expansion came from emerging markets, where domestic loan growth shows few signs of being fazed by the mid-year financial market turbulence.
Using these "excess liquidity" gauges as a guide to asset prices and assessing their power over time, the report concludes that remains a powerful upsurge".
"The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of magnitude," it concluded.
Source: Reuters
