LONDON : Soaring interest rates, slowing economic growth and a banking sector still recovering from a March rout might suggest a note of market caution, yet world stocks are at 14-month highs, the S&P 500 stock index has entered a bull market and gauges of volatility are eerily calm.For some, the answer t
LONDON : Soaring interest rates, slowing economic growth and a banking sector still recovering from a March rout might suggest a note of market caution, yet world stocks are at 14-month highs, the S&P 500 stock index has entered a bull market and gauges of volatility are eerily calm.
As the second half of 2023 approaches, a more challenging environment could emerge for risk assets currently benefiting from ample liquidity.The Federal Reserve in March loosened financial conditions with an emergency credit facility for cash-starved banks, Japan's central bank is still buying government bonds to push money into the system, and the European Central Bank is selling down the government bonds it holds at a relaxed pace.
Central banks have added a net $1.7 trillion into money markets since November, it also estimates, a move that correlates with a risk-taking trend. This may also crimp banks' ability to lend as they raise deposit rates to compete with T-bills, reducing the flow of credit to corporations and consumers.
Their cash tends to go into reverse repos, a Fed facility that offers generous rates for parking money overnight, and may move into T-bills instead, said Ken Taubes, chief investment officer Amundi U.S..
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