Wednesday Synthesis: Diagnosing Supply/Demand Crossover at Half-Year End, Real Net Liquidity Contraction, and Asset Class Decoupling

Global capital markets are digesting a macro environment where the real net liquidity supply chain in the United States is on a gradual contraction path due to the cumulative effects of the Federal Reserve's (Fed) quantitative tightening (QT) and the locking up of funds in the Treasury General Account (TGA), amidst new fund reallocation flows at the beginning of the half-year, following the official close of Q2 and the first half.

While major indices form a narrow sideways range after the inflation-relief rally, the total real net liquidity within the financial system has not expanded, leading to a phase where capital concentration becomes more pronounced. In such an environment where the fundamental supply chain of funds is constrained, the attitude a top-down investor should adopt is not to optimistically expand positions, expecting a broad-based rise in stock indices.

Instead, it is to intelligently converge account positions towards the strongest bottleneck players in the value chain, where capital is compactly entrenched, by interpreting granular reserve data and tracking statistical correlation coefficient changes between asset classes.

Net Liquidity (USD Net Liquidity), the real strength of the underlying U.S. financial system, is calculated by subtracting the TGA general account and Reverse Repo (RRP) balances from the Fed's balance sheet size. As of early July, U.S. real net liquidity is being adjusted downward to approximately $5.85 trillion.

While net liquidity in the system has contracted somewhat due to the Federal Reserve's ongoing bond asset reduction and the government's half-year end TGA balance build-up schedule, commercial bank reserves have maintained robust downward rigidity around the $3.33 trillion mark, supported by the gradual unwinding of RRP balances (approximately $390 billion remaining).

This can be explained by analogy to the water level of an agricultural reservoir. Although drought (sharp liquidity crunch) is prevented and the reservoir's water level is defended at a certain line, the overall water storage capacity of the reservoir is gradually suppressed because the inflow of water (new money supply) is controlled due to the Fed's continued quantitative tightening. Under this structure, it will be difficult for the reservoir water to flow evenly to all cultivated lands (the broader stock market), and the water flow will be restrictively directed only to a few leading high-tech value chain players with the highest production efficiency and monopolistic power within the value chain.

In conjunction with this, we must diagnose the statistical correlation (Correlation Matrix) between asset classes and the differentiation pattern of credit spreads. Currently, the correlation coefficient between the S&P 500 index and the digital asset ecosystem shows a strong positive correlation at a level of 0.65, indicating that they are jointly digesting the liquidity benefits provided by monetary pivot expectations in terms of supply and demand channels.

On the other hand, gold assets, a representative pillar of safe-haven assets, are supported by diversified buying inflows from global central banks, charting a strong decoupling trajectory independent of stock and bond fluctuations, and serving as an excellent small unit for account defense. The relative price ratio of copper to gold (Copper/Gold Ratio) also shows a stable flat trend around the 0.0016 level, quantitatively proving a gentle soft-landing phase without a sharp recovery in manufacturing activity.

The Ted Spread, indicating short-term systemic credit risk, is very low at approximately 0.039%, and the VIX index is also subdued around the 12.3 level, signifying that the overall market's short-term default risk is extremely controlled.

Ahead of the key non-farm employment report and unemployment rate figures to be released early on Thursday, preceding the Independence Day holiday later this week, the current phase of stagnant macro liquidity is a tense waiting period where capital is compactly rotating towards top-tier bottleneck companies in the value chain with the most certain earnings visibility. We must not forget that the Fed's quantitative tightening continues even amidst this calm sideways phase. As long as the rationale for a decline in the market's real discount rate is not undermined, it is necessary to calmly interpret the valuation stabilization levels of leading stocks that possess unique licensing moats in on-device architecture and power grid infrastructure, utilizing short-term supply and demand fluctuations before and after inflation data releases, and to secure real support for portfolios.