As we enter the historically weak 7–10 days for markets, it’s a good time to be cautious. Banks are also preparing for quarter- and year-end window dressing, which tends to drain liquidity as they park USDs at the Fed to clean up balance sheets.

We expect $225 billion to leave the market by month’s end, tightening liquidity more than in 2023 but less than in 2022. Foreign USD liquidity remains cheap, but local tightening is underway, with the 3-month EURUSD basis likely around -55 bps.

With weak seasonality and liquidity pressures, we’re staying defensive until this period passes. Better safe than caught in a storm. For more, see here.

The market also remains unconvinced by the Chinese attempts to “prop up” the sentiment again and e.g. the hyper-China-sensitive Iron Ore closed markedly down despite the Chinese stimulus hints. We also remain unconviced, especially also given the weakness seen in the European momentum, which is typically a decent live-gauge of Chinese trends.

Chart of the Week: Here comes the window-dressing towards the week-end