BAML: The '$1 trillion flow that conquers all' explains everything happening in markets

Bob Bryan

The global markets all come down to central banks.

At least that's the argument of Michael Hartnett, the chief investment strategist for Bank of America Merrill Lynch.

In a note to clients on Thursday on what he called "the $1 trillion flow that conquers all," Hartnett observed that the amount of financial assets added to central banks' balance sheets was the "one flow that matters" in the market.

"$1 trillion of financial assets that central banks (European Central Banks & Bank of Japan) have bought year-to-date (= $3.6tn annualized = largest CB buying in past 10 years); ongoing Liquidity Supernova best explanation why global stocks & bonds both annualizing double-digit gains YTD despite Trump, Le Pen, China, macro," Hartnett wrote.

Put another way, the $1 trillion in bonds and stocks bought this year by central banks like the ECB, the BOJ, and the Swiss National Bank puts purchases on pace for $3.6 trillion in buying this year, the most dating back to the start of the global financial crisis in 2007.

Hartnett argues this big increase in central-bank balance sheets has held down bond yields and supported stock prices. So, even with rising geopolitical uncertainty that one would think might put a dent in markets, there has been relative stability in Hartnett's eyes.

central bank asset purchases COTD

(Bank of America Merrill Lynch)


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