Welcome to Thoughts on the market. I'm Matt Hornbach, Global Head of Macro Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives,

I'll be talking about global macro trends and how investors can interpret these trends for rates and currency markets.

It's Thursday, November 12th at 3 p.m. in New York.

I want to talk about liquidity because I think it's been an important factor in macro markets

this year. For example, I thought the influx of liquidity in addition to a V-shaped

global economic recovery would weigh on the value of the US dollar and since I

discussed that on this podcast at the end of April

the broad trade-weighted dollar has lost about 7% of its value. More importantly I think

liquidity will be an important factor for macro markets next year as well.

Before I get into it, liquidity can mean different things to different people,

so let me explain what I mean.

Some people define liquidity as the ability to transact a high volume at a low cost. Others define it as the ease with which

you can convert an asset into cash. While those are acceptable definitions, today I'll talk about

what I call narrow liquidity. This is the ability and willingness of actors in the

economy to buy and sell assets via central bank reserves, what you might consider to be electronic

cash. Central banks can increase the supply of these reserves by purchasing securities in the open market.

That's what we call quantitative easing or QE.

Likewise, Central Banks could decrease the supply by selling securities.

As you may know, in response to the economic effect... decrease the supply by selling securities.

As you may know, in response to the economic effects of the pandemic,

Central banks in the G10 injected more liquidity in 2020 than ever before.

...