When we last left off with the TIC data, the figures showed pretty clearly Japan’s retreat from “dollar” dealing during January and February. Global liquidations occurred during January and February. Therefore, it was reasonable to speculate upon Japanese origins of those liquidations.

That wasn’t the only interesting development revealed by TIC. Over in Hong Kong, there was a surge in “dollar” activity coincident to HKD’s fall. I wrote last month:

Instead, given the almost perfectly mirror-like behavior between CNY and HKD it seems more likely (to me) that Hong Kong banks have been pressed into “dollar” service on behalf of Chinese banks. These latter in eurodollar markets, as noted above, are almost certainly being abjured (charged too much premium) for the greater perceived risks involved (especially with Japan on the retreat from this business). Thus, HK banks borrow the eurodollars at better rates and then some (creative) backdoor channels are opened to funnel them further into the mainland.


If that’s the case, then we should expect to find a substantial enough increase in our proxies for “dollar” activity represented by TIC.

We did. In March 2018 it was even more. A lot more.

CNY wouldn’t register its most recent high until March 26. I think HKMA has its hands full, which is why despite more than a month now HKD remains stuck at 7.85 no matter what authorities have been doing the whole time in between (apart from whatever that was April 19-23).

It doesn’t help that Japanese banks are still withdrawing, if only by a little in March (is that why there were no big liquidations as compared to February?) Nor would it help as it seems Europe’s banking system is perhaps having second thoughts about all this.

Given the way the euro has behaved (almost every currency) since that one point in mid-April, I anticipate finding a clear decline from Europe in the next TIC update.

With what happened during Q1 in mind regardless of geography, a decline in banks’ reported dollar liabilities was easily expected. With this update for March 2018, the entire first quarter was -$63 billion in liabilities, which ranks it among the worst quarters of recent history. That it ended up more like 2014-16 is consistent with global financial experience.

The only inconsistency, or, rather, the only piece that wasn’t like 2014-16 in the figures, was the behavior of foreign central banks and governments. While all that selling was taking place especially in February, according to the TIC data these were all buying UST’s and agency paper during the month. It continued on into March.

It was the largest two-month increase in holdings since QE4. I’ve hypothesized that it was these overseas institutions taking seriously the mainstream narrative of how everything was getting back to normal (inflation hysteria) and therefore they might have thought their assistance was no longer required. That might help explain why things got so out of hand so quickly.

After what has happened around the world since mid-April, however, I wonder if they will have approached it the same way (assuming, again, that’s what explains the buying).

Tune in next month.