Bloomberg News reports:
Welcome to Quantitative Tightening as $12 Trillion Reserves Fall
- China tops central-bank drawdown of foreign currency reserves
- Reserve reduction may complicate interest rate increases
Even as U.S. policy makers ponder whether to raise interest rates this month, one recent source of central bank liquidity in financial markets is drying up and the loss of it partly explains August's trading volatility.
Behind the drawdown are the foreign exchange reserves run by the central banks. Bolstered following financial crises in the late 1990s as a buffer against capital outflows and falling currencies, such hoards fell to $11.43 trillion in the first quarter from a peak of $11.98 trillion in the middle of last year, according to the International Monetary Fund.
This is big news. It has left the blogs and entered mainstream reporting. If interested in the topic, please read the entire article, which is brief.
My translation is "risk off." If continued and not already discounted by the markets, this is a mega-trend that I believe increases the risk of another leg down in the stock market.