The regulatory regime that applies to US money market mutual funds is changing significantly in mid-October. The side effect of this change has been a notable increase in bank funding costs (i.e. higher LIBOR-OIS spreads). While they are relevant for US credit investors, these recent developments tell us nothing about market concerns around bank solvency.
On Thursday 4th August Mark Carney delivered a four-pronged package of monetary stimulus to keep the global liquidity party going, after some disappointment from the Bank of Japan last week. Lower for longer remains the message and as long as it lasts then excessive credit growth in emerging markets may well continue to go unpunished.
Following a stark market response to what was an unexpected result, markets remain volatile. Political uncertainty is at record levels in the UK which impacts business investment. See my interview on Bloomberg TV's European Close show yesterday where I discuss the market impact of the Brexit vote, how imported inflation could hit consumption, and which areas of the market have been worst hit, including sterling and UK property.
Sweden's central bank, cut repurchase rates to -0.5%, but it feels like the wrong medicine. House prices are rocketing, growth is decent and unemployment is low. It feels like sawing off a patient's head to cure their migraine. We think a variable import tax would be a much simpler solution.