If we look at M2 trends (narrow money + time deposit / MMFs and similar assets), the broad USD measure remains a staggering 18% above trend with M2 nominally trending almost 4 trillion USDs above a long-term trajectory.

The similar trend in EURs is much less extraordinary with M2 currently 7% above trend, which translates to a little more than 1 trillion EURs nominally.

Chart 1: There is still a large excess of USDs in the system

So where are those excess USDs parked? The short answer is that the substantial >30% growth in broad money in USDs since the pandemic has led to a material spike in time deposits and money market fund positions, especially after the Fed had to hike rates in response to the excess money creation through 2021.

Time deposits account for almost 3 trillion USDs, while the ICI Money Market Fund assets statistic is approaching almost 6 trillion USDs.

In our studies of typical lead/lag patterns, we are approaching the peak in time deposit and MMF positions towards the end of Q1, which leaves a potential inflow into risk assets of up to a couple of trillion dollars.

These are not idle USDs but instead relatively active USDs as time deposit and MMF positions are based on active investment decisions.

To read the entire analysis and how we trade it, find the material here

Chart 2: Time deposits are through the roof