following the debt ceiling agreement, and the continued shift from US bank deposits into money market funds.
A sharp liquidity decline in the US is unlikely to be offset by the rest of the world, Kolanovic said. He highlighted the fact that banking system liquidity in the euro area has declined by €1 trillion since November 2022, and an expected €477 billion in upcoming loans is maturing by the end of June, which should further hurt liquidity conditions.
driven by the huge hype in artificial intelligence stocks, and that it appears to be bubble-like. That, combined with falling liquidity, means stocks are more at risk of falling than rising, according to Kolanovic. "The consensus view that the worst of pressures is behind us will likely be proven wrong as the impact of monetary tightening worked historically with a lag, and certain growth supports are waning, such as excess savings and strong margins. In our view, stocks are set to face an increasingly challenging growth-policy tradeoff in 2H," Kolanovic said.
"This severe deposit contraction would not mean that there would be less liquidity or cash to be invested in financial assets, but it would put more strain in the US banking system if these deposit outflows end up hitting vulnerable regional banks. To us this is another justification for a cautious stance on risk assets," Kolanovic said.