![]() The table below shows the total federal government withdrawals from their account at the Federal Reserve Bank. ![]() The 5-year index averages call for a sharp dip around trading day 60 and I expect that to keep right on going for the rest of the year. This year was off to a good start, generally moving upward from left to right but that has changed now and the downward macro plunge that dominated last year's markets has most likely now returned. The black oval shows roughly where we are (trading day 51) at the time of writing and the end of the green line on the chart below. The chart below shows the five-year average of the seasonal stock market patterns for the SPX ( SPX), NDX ( NDX), Dow ( DIA), Russell 2000 ( RTY), and Biotech ( IBB) market indexes. The granularity of this chart does not allow for a more precise timing than this. Longer term the leading blue fiscal impulse line points to a major inflection downwards for markets in late 2024 or early 2025. Short term, the orange SPX line appears to be trending back upwards to follow the leading blue line. The blue line shows the fiscal impulse from federal government outlays plus bank credit creation and less the current account balance and leads by up to five quarters. This is like a long-range market radar set. The following chart emerges when one graphs the change rate of the information in the USA sectoral balances table above and adjusts for impact time lags. The calculation is Federal government spending or G plus the external sector (X and normally a negative factor) to leave that amount of money left to the private domestic sector or P by accounting identity true by definition. A trend line has been added to give an idea of the broad direction, which is downwards for both the private domestic sector (where asset markets are located) and the SPX. The chart below shows the above data plotted in nominal terms. Much is made of the approximately $8.6B per month that the USA sends in kind to Ukraine however the mainstream press says nothing about the $30B+ per month that is being sent to the banking sector each month. I saw that even with the SVB Financial Group ( SVB) banking crisis that JPM increased in share price regardless, being probably the bank that has positioned itself the best to earn the free lunch that is interest on reserves. With more rate rises on the horizon this net transfer of money to the banking sector is set to continue to grow and benefit the banks mentioned in last month's report. Note how this has grown with each interest rate rise in a relatively short time. The chart above adds more color to the impact of the federal reserve bank paying interest on reserves to the banking sector. The fiscal acceleration and rate of acceleration numbers are positive and point to stronger asset market outcomes in April where the seasonally large federal tax collection in the middle of April will remove any buoyancy that may be in markets until that point. Only quarterly reporting is very lumpy from a statistical point of view. Next month there will be a fresh current account balance to use and it will be interesting to see if its contraction is still progressing. In February 2023, the domestic private sector recorded $190B of growth in financial balances overall and this is a strong and positive result.įrom the table, one can see that the $190+ billion private sector injection of funds came from a $294+ billion injection of funds from the federal government, less -$30+ billion of credit retraction from commercial banks and less the -$72B+ billion that flowed out of the private domestic sector and into foreign bank accounts at the Fed in return for imported goods and services. The table below shows the sectoral balances for the USA and are produced from the national accounts. Other macro-fiscal flows can point to events months or years ahead. This is pertinent, as a change in the fiscal flow rate has an approximately one-month-lagged effect on asset markets and is a useful investment forecasting tool. ![]() The purpose of this article is to examine the USA sectoral flows for February 2023 and assess the likely impact on markets as we advance into March 2023.
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