News Items was delayed this morning due to technical “issues.” Sorry about that.
The rocketing US dollar is draining global liquidity and tightening conditions violently for large parts of the international financial system, and for the interlinked nexus of credit contracts and derivatives.
The Federal Reserve’s broad dollar index is the highest in real terms since modern data began.
The market dollar index (DXY) is the highest since the end of the dotcom bubble two decades ago - when the US was the unchallenged global hegemon, at the peak of its post-Cold War strategic and technological ascendancy.
CrossBorderCapital says global liquidity has been contracting at a rate of 24pc (annualized) in dollar terms over the last three months.
This is chiefly a US story. The US monetary base has fallen from a peak of $6.47 trillion to $5.57 trillion since mid-December as the Fed winds down quantitative easing, and the US Treasury rebuilds its cash reserve at the Fed - which takes money out of the economy. (Source: telegraph.co.uk)
2. Shock waves from the stock market’s declines are spreading into junk bonds, sending prices tumbling and forcing some companies to cancel new deals. Average prices of U.S. high-yield bonds fell to around 91 cents on the dollar Monday, the lowest level since May of 2020 when pandemic shutdowns slammed the global economy, according to data from Bloomberg. The selloff has punished companies with below-investment-grade credit ratings and poor reported earnings. It is also making it harder and more expensive for some to raise new debt for capital investments, acquisitions and refinancings. (Source: wsj.com)
3. TerraUSD, the controversial algorithmic stablecoin, slumped on Wednesday as crypto markets await a rescue led by primary backer Do Kwon. The token fell further from its intended 1-to-1 peg to the US dollar to trade at around 50 cents at 10 a.m. in London, wiping out billions of dollars of value, data compiled by Bloomberg show. Luna, a coin that’s part of the peg mechanism for TerraUSD, tumbled 83% over the past 24 hours, according to CoinMarketCap. Broader crypto markets showed few signs of getting caught up in the turmoil, with stablecoins like Tether holding their pegs and major tokens including Bitcoin and Ether trading little changed. Matt Levine’s column on TerraUSD is required reading. (Source: bloomberg.com)