Living in a world of excess liquidity

As the world economy came to a standstill during March, central banks across the world expanded their balance sheets aggressively. One consequence of the aggressive stance taken by central banks was a surge in central bank liquidity. An obvious question to ask in this context is where all this liquidity will eventually end up? We will tackle this question in our latest Cross Expertise, following all the different channels through which central bank liquidity will promulgate through the wider economy and asset classes around the globe. We first look at the impact on the banking sector for whom investing the excess liquidity is not an easy task. We then analyze the consequences of the high level of excess liquidity on money markets in the US and Europe. We then look at the Japanese experience with aggressive monetary policy easing and how the global wall of liquidity is affecting emerging markets. Finally, our strategists assess the impact of central bank liquidity on the different asset classes. While the effect is in all cases an indirect one, it can be nonetheless powerful over time. Given that central banks will stay very accommodative for the foreseeable future, we hope that investors will find in this report some help to navigate our world of excess liquidity.