LIQUIDITY NEWS ...
[Latest Endogenous Liquidity Index: -58.5%; Latest Global Dollar Liquidity measure: +29.6%]

- Endogenous Liquidity Watch. The Endogenous Liquidity Index improves once again, courtesy of both the falling VIX and collapsing CDS spreads. As expected, ten-year inflation breakevens have deteriorated somewhat following the recovery in commodity prices. As a result, the Goldilocks/Stagflation Index retreats a bit, which makes equities less attractive at current levels. There are some encouraging signs in terms of junk bond spreads: the "New Junk" spread trades at 877 bps, down from the high of 1013 bps reached on September 21. Still, I am a bit skeptical about further S&P500 rallies if Moody's Baa spreads fail to collaborate. [KDP High Yield Daily Index]
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- Denmark & the euro [Liquidity @ Financial Times]. Can Scandinavian countries afford to go it alone? The banking crisis highlights the pitfalls of monetary sovereignty in the age of ... connectivity. The Danish central bank has been forced to sell FX reserves and to raise interest rates twice to shore up the krone: "The spread between Danish interest rates and the ECB's was just 25 basis points in May; it is now at an all-time high of 175 basis points. This could widen further if the ECB cuts rates as expected by half a per cent on Thursday and the Danish central bank does not follow. The interest rate rises threaten to push housing prices down further, hurt consumer spending and depress an already stagnating economy". [Robert Anderson: "Danish PM seeks backing for euro referendum", Financial Times]
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