Capital inflows to the US resumed in January …
That shouldn't be a total surprise. You cannot run a $850-860b current account deficit for long if you cannot borrow from the world. December's roughly $15b net outflows simply wasn't sustainable. In January, net inflows totalled aroudn $75b, with a bit under $50b in recorded net private inflows and a bit over $25b in net official inflows.
Foreign private demand for US bonds — recognizing that the line between private and official demand is blurred by the use of custodians and private managers for a portion of the world's reserves — returned in January. Perhaps as importantly, US demand for foreign bonds fell. The big upturn in US demand for foreign bonds explains, in part, the weak December data. Foreign demand for US equities also exceeded US demand for foreign equities in January. Let's see if that continues.
Official buyers liked Agencies but not Treasuries. China bought Agencies, Brazil bought both Treasuries and Agencies and the Norwegian government fund sold Treasuries, big time. China, Brazil and the Asian oil exporters combined to buy over $20b of long-term US securities, but their purchases were offset by Norway's $10b sale.
Moreover, since a lot of the reported overall increase in official assets doesn't show up in the specific line items for either long-term or short-term securities, it looks like the world's central banks built up their dollar bank accounts. The disaggregated data indicates that both China and the Asian oil exporters increased their short-term claims on the US. Norway did too, but the increase in its short-term claims was smaller than the fall in its long-term claims. Russia, by contrast, continued to move its assets offshore — total Russian short-term claims continued their fall.
Brazil and India also increased their short-term claims on the US – and the growth in individual line items scream "central bank." But the increase from Brazil was more noticeable. The Tokyo (or Zurich) to Rio (or Sao Paolo) to US treasuries channel is becoming a rather important mechanism for financing the US: the Brazilians, unlike the Indians, seem to hold most of their reserves in dollars.
To be honest though, I am more interested in the February number than the January number. Every indicator I check suggests (private) capital flowed toward the emerging economies in a big way in February and, in turn, global reserve growth absolutely soared. Monthly reserve growth of something like $80b (an annualized total of over one trillion dollars) isn't out of the question. And I want to know how much of that flowed into dollars — and how much of that dollar flow was captured in the US data.
The dollar doesn’t seem to be doing so well against the Euro despite this news, though. Even the higher-than-expected inflation figures didn’t do much to boost the greenbacks fortunes. If the current account deficit is shrinking, inflation is rising, and capital inflows are more than adequate, then why is the dollar not doing better?
– us rates (long ones) falling (generally speaking) — european rates (short ones) still rising
risk aversion generally isn’t good for big deficit countries
and even if the CAD isn’t getting bigger and was adequately financed in june, it is still big absolutely — and it requires an enormous share of cross border net flows to go either to the US or to countries that are bulding up reserves and finance the US.
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