US Liquidity Rebound Likely Temporary, Says JPMorgan Strategist

According to PANews, JPMorgan cross-asset market strategist Nikolaos Panigirtzoglou recently analyzed the fluctuations in U.S. liquidity or M2 money supply, which includes U.S. bank deposits and money market funds. He noted that after a contraction in April, the U.S. liquidity or M2 money supply has rebounded in recent months. Despite this rebound challenging their forecast of a moderate contraction until at least the end of the year, Panigirtzoglou believes their prediction remains reasonable and that the recent rebound is likely temporary. He attributes the temporary boost to the U.S. Treasury General Account balance falling below $850 billion and the Federal Reserve's reverse repurchase agreement (RRP) facility dropping below $300 billion. Panigirtzoglou suggests that these factors may have already passed, paving the way for a different liquidity environment. He explained that with these temporary boosts likely behind us, the Federal Reserve's ongoing quantitative tightening (QT) and moderate expansion of U.S. bank loans will collectively lead to a contraction in U.S. liquidity or money supply, similar to the liquidity backdrop of 2022. This expected contraction marks a significant change compared to the $1.3 trillion growth in money supply from April 2023 to March 2024, primarily due to a $1.8 trillion reduction in the Federal Reserve's RRP facility. As these temporary factors fade, Panigirtzoglou anticipates that financial conditions will tighten once again.