Liquidity is about to turn more restrictive

MS QDS team is out with a good note arguing that the single most important driver of equities over the last year has been excess liquidity – and it’s about to turn more restrictive. The amount of liquidity in the system is about to change again – the Treasury is increasing bill issuance sizes, which will drain liquidity from the system. The Treasury could build cash by more than $200bn over the span of a month – which on top of QT will effectively drain nearly $300bn from bank reserves – which implies the S&P 500 should be 6% lower over the next month.