One of our favourite “strategists” when it comes to reasoning about derivatives and the effect on markets is JPM´s Marko Kolanovic. His input is great, but just as all of us, he does get it wrong at times.
For proper trading you need to have your risk and p/l management in place, and this is something strategists don´t need to care about, since most of them have never traded professionally nor do they make or lose real money (for the most vital part of all trading visit the risk management link here).
Kolanovic released a note yesterday explaining many interesting views. If we were to choose the most important part of the note it would be the below. He writes:
“If the balance sheet reduction is a signal to sell, volatility increases, liquidity decreases, and additional systematic flows are triggered. Balance sheet driven market fragility is thus increasing the risk of market disruptions and ultimately the risk of a recession – which is in contrast to policy makers’ intentions.”
Below is an updated chart of the balance sheets of the Fed (white), BoJ (red), ECB (blue) and PBOC (purple). We can clearly see only one of them is in QT mode, while the others are busy buying this latest move higher.
Source; charts by Bloomberg