Nomura Securities International, Inc.
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Capital Flow Monitor (TIC)
FX Research and Strategy | G10
Weakness persists into 2011
TIC data for January showed still relatively weak private and official demand for US assets. This follows on from very weak flows at the end of 2010, especially in the central bank space. Higher frequency data indicate that February was a stronger month for US capital flows, including in fixed income, but from a very low base.
January TIC data released this morning show an overall weak start to 2011 for theUS capital flow picture:
Private inflows into US assets
came in at $23bn, half the average pace of inflowsseen over Q4. This was primarily due to a reduction of Treasury bill holdings(-$12bn) as well as weaker-than-expected inflows into US equities (which did notreflect the general rise seen in retail fund flow data during January). On the otherhand, private outflows into foreign securities picked up significantly in January($23bn vs. an average outflow of $13bn over the previous six months). This isclose to the outflow seen in October (a period we like to term the QE2 bonanza).
told a similar story, as net inflows in January amounted to only $5bn($11bn when adjusting for flow through the UK). Over the three month period fromNovember-January, central banks actually reduced their dollar holdings by $9bn.Even though December and January were weak months for global reserveaccumulation, outright dollar selling points to reduced USD allocations. This mayhelp explain the underperformance of the dollar despite improved economic data inthe US and an improved appetite for US equities from international investors.Higher frequency data suggest that the TIC data for February could be better. NYFed custody data showed a pickup in dollar buying in the first half of February,indicating that official inflows may be improved. Recent Treasury bond auctionshave also been strong, as the 3yr, 10yr and 30yr auctions all demonstrated strongbid-to-cover ratios and non-dealer demand in line with historical averages. Butinflows into risk assets, such as US equities, are more uncertain again, given theincrease in global risk aversion.
Figure 1. Official inflows vs. total reserve accumulation Figure 2. Outflows vs. inflows into risk assets
Note: Dollar accumulation is estimate based on TIC data.Source: Nomura.Source: US Treasury, Nomura.
-20020406080100120140Jan-10 Apr-10 Jul-10 Oct-10 Jan-11$bn 3mmaTotal Reserve AccumulationDollar accumulation (TIC)-30-20-10010203040Jan-09 Jun-09 Nov-09 Apr-10 Sep-10$bnInflows into US risk assetsOutflows into foreign risk assets
16 March 2011
Contributing Research Analysts