World liquidity growth returns to mid-2010 levels
In April 2011, the world liquidity is growing more rapidly thanks to China and the Fed. A positive factor for risky assets on the very short term.
The reasons why the growth of liquidity in China is so ample are: appreciation of the Renminbi against the USD (-4.8% YoY for the USD/CNY), still strong demand for credit and massive inflows of speculative investment (hot money). In The US, it is the QE2 that pushes up the base money but this will end (on a sequential basis) in June. In the euro area, the ECB has begun its exit strategy in the end of last year and excess liquidity lend to banks almost dried up since then.
A rapid expansion of the world liquidity, thanks to the Fed and the emerging world, is a strong support to risky assets (mainly equities and commodities). By the end of the summer, the growth is very likely to rise close to 25% YoY. However keep in mind that on a monthly basis, the impulse will fade away by the end of June (QE2 over). Moreover, monetary tightening in the BRIC is also expected to lead to a gradual slowdown in liquidity growth.
In conclusion, on the very short run, world liquidity will remain ample and positive for markets. But, this will fade away after the summer.
* World liquidity = Sum of central bank money. We use the base money in USD (end of month rate). USD global appreciation or depreciation