Traders should prepare for a worldwide reduction in liquidity, which is likely to bring about increased market volatility, as per Gavekal Research.
Despite the Federal Reserve's interest rate hike, technology stocks, gold, and bitcoin have all seen significant gains recently, indicating that there is still ample liquidity in stock markets. Louis-Vincent Gave of Gavekal Research pointed out that in bull markets, advances require an influx of money, and there are signs that new constraints on global liquidity will emerge in the coming months.
These constraints include the reduction of the Fed's reserve repo facility, increased issuance of US Treasuries, the stabilization of oil inventories, and the potential repatriation of cash to Japan by domestic institutions following a rise in interest rates by its central bank.
Gave stated in a report, "Both the demand and supply sides indicate a significant change in the overall global liquidity environment in the coming weeks and months. This is likely to lead to increased market volatility and pose a particular risk to assets that are currently overextended and richly valued."
