Authored by Simon White, Bloomberg macro strategist,

The stock rally is at risk from the first pronounced drop in excess liquidity in over two years. Trumpian ebullience has boosted growth expectations, further entrenched inflation and catapulted the dollar higher, but that has also caused liquidity to tighten. Equities are on thinning ice unless the Federal Reserve subordinates rising inflation risks to supporting asset prices.

The torrent of headlines has begun in earnest. Even on the morning of yesterday’s inauguration, markets were blindsided by a report that tariffs will not be imposed immediately. Expect much more of the same to come, but in such a febrile environment it’s easy to forget that it’s liquidity that ultimately matters most for assets.