One certainly can’t blame the Fed for trying: after firing a repo “bazooka” yesterday, which could provide up to $5 trillion in monthly liquidity in exchange for eligible pledged securities, and following that up with an emergency QE operation today when the Fed announced it would buy up to $37 billion in securities across the curve from domestic and foreign banks, risk assets have staged a modest rebound after the biggest selloff since Black Monday, and the relentless selloff of Treasurys, likely prompted by risk parity fund unwinds, has moderated.
But where the Fed has catastrophically failed, is in addressing the most important task facing it this moment: easing the unprecedented dollar shortage which is getting worse by the minute.
Despite the barrage of central bank actions meant, more than anything, to ease bank fears that dollars will not be available when needed to rollover trillions in maturing debt, the dollar has seen a relentless surge higher, with today’s move shocking in its severity and consistency.
Yet while one can argue that the dollar is traditionally a flight to safety in times of stress, the fact that the dollar is surging today even as stocks are soaring and the Dow is about to be up 1,000 suggests that something else is going on.
That something else is the relentless move higher in the 1st IMM FRA/OIS, which was supposed to ease after today’s massive term repo operations, yet which spiked when it emerged that there was barely any usage early this morning, arguably due to regulatory limitations and concerns about liquidity coverage ratios.