Liquidity is a crucial component of any financial market, as it allows for efficient price discovery and risk management. In recent weeks, market volumes have been tracking slightly higher than in the past week or so, with current levels sitting at +2% versus the 5-day moving average (5dma). This increase in liquidity is particularly notable in the exchange-traded fund (ETF) space, where volumes are normalizing from peak geopolitical escalation highs. Currently, ETF volumes sit at 24%, which is down 6% from the 20-day moving average (20dma).

One area where liquidity has improved significantly is in the S&P top of book. Currently, this metric sits at $11.15m, which is up +32% versus the 20dma. This increase in liquidity suggests that market participants are becoming more confident in their investments and are willing to take on more risk.

In terms of flows, activity levels are currently at a 4 out of 10, with our floor 4% better for sale on low notional. This is largely due to the disparity between supply and demand across various sectors. For example, liquidity providers (LOs) are better for sale supply in industrials and macro products versus demand in info tech and consumer discretionary. Similarly, hedge funds are 12% better for sale, driven primarily by supply in info tech and energy versus demand in healthcare and macro products.

Overall, the improvement in liquidity is a positive sign for market participants, as it suggests that confidence is returning to the markets. However, it’s important to note that liquidity can be fleeting and may not always be available when needed. As such, it’s crucial for investors to stay vigilant and adapt their strategies accordingly.