Beware These January Days When The Fed's QT Will Rock Markets

With traders finally accepting the reality that Quantitative Tightening means collapsing liquidity, tighter financial conditions and - obviously - lower asset prices, especially in the aftermath of Powell's "autopilot" comment regarding the Fed's balance sheet runoff which sent markets tumbling during the last FOMC meeting... 

... Nomura's Charlie McElligott reminds us of his October call anticipating a "financial conditions tightening tantrum" which was based-upon the enormous "global QT impulse" that month (and which proved to be accurate) for one simple reason: January 2019 should see similar "tightening" as the Fed’s balance-sheet run-off continues (including two heavy weekly QT periods during the first- and third- weeks of January). And that's not all: in a world of fungible global liquidity, January will be hit with the double whammy of it being the first month following the cessation of the ECB’s bond-buying program.

So for those who - correctly - view the shrinking Fed balance sheet as one of the most important drivers of (declining) asset prices, and who also expect a self-fulfilling prophecy to emerge as traders avoid buying stocks on major QT days (which would likely result in aggressive selling) here is the calendar of January - and 2019 - days that have the largest balance sheet shrinkage, courtesy of Nomura's George Concalves. Will it be right? We'll know as soon as the first trading day of 2019, when $18.2BN in TSYs are set to mature.

Putting the Fed's projected balance sheet shrinkage in context - assuming of course Powell doesn't fold to pressure and halt QT - this is how the Fed's asset shrinkage will look like in 2019.