Money Markets See Biggest Inflows Since End 2013

Investors poured the most cash since October 2013 into global money markets on the heels of trade tensions and turmoil in developing economies.

At $45 billion, US funds were the biggest beneficiaries of the $55 billion inflow in the week through June 6—the second-highest on record—according to EPFR Global. Allocations into US inflation-protected bond vehicles also hit their highest since the fourth quarter of 2016, according to the data provider, Bloomberg reported.

“With the global growth story losing some of its shine, tariff-related rhetoric increasing in volume and a populist government taking office in Italy, investors opted for liquidity in early June,” Cameron Brandt, director of research, wrote in a note. European equity and emerging-market fixed income were big losers.

Woes in developing economies and trade frictions were on full display this week, with Friday’s G7 meeting in Quebec, Canada, underscoring President Donald Trump’s isolation on the international stage, creating a more complex outlook for market risk.

Money managers can also snap up positive real returns on cash-like instruments in the US, effectively for the first time since the crisis. Three-month US Treasury bills yield about 1.9%, up from 1.4% at the start of the year.

Still, EPFR data suggest bullish sentiment endures. US equity funds extended their longest inflow streak since the fourth quarter of 2017, and Chinese bond funds saw the highest allocation in over 17 months, according to EPFR.

“Investors did respond—cautiously—to some of the bright spots in the global growth picture,” said Brandt.

 US Money Market

US money market fund assets recorded their biggest weekly increase in 10 months following a wild week of market volatility fueled by anxiety about global trade tension and political turmoil in Europe, data from the Money Fund Report showed on Wednesday.

Assets of money market funds, which are considered nearly as safe as bank accounts, grew by $34.65 billion to $2.832 trillion in the week ended June 5, the Money Fund Report said, Reuters reported.

That marked the biggest rise since the week of Aug. 9, 2017, when money fund assets increased by $37.88 billion. Last August, financial markets grew turbulent amid the heated exchange between the United States and North Korea over Pyongyang’s nuclear program.

In the latest week, taxable money market fund assets climbed $35.04 billion to $2.692 trillion, while tax-free assets decreased by $389.80 million to $139.65 billion, according to the report, published by iMoneyNet.

 ECB Rate Hike

Money market investors are now pricing in a roughly 90% chance that the European Central Bank will raise interest rates in July 2019, following hawkish comments from the bank’s chief economist on Wednesday.

The ECB is increasingly confident that inflation is rising back to its target and will next week debate whether to gradually unwind bond purchases, chief economist Peter Praet said.

Eurozone money markets are also pricing in a 70% chance of an ECB rate hike in June 2019, up from 50% earlier this week.

This is a change from last week, when investors had scaled back tightening expectations on concerns over an Italian political crisis, and a hike was only being priced in for October 2019.

 Swiss Real Money Fallout

The Swiss central bank, SNB, has built up a $750 billion war chest after years of currency interventions but a referendum to limit money creation, if passed, could end such operations and have repercussions far beyond Switzerland’s borders.

The Vollgeld initiative, which would strip commercial banks of the power to create new money through lending, is being put to a popular vote this weekend.

Just a third of voters appear to back the plan, but the recent patchy record of opinion polls worldwide has fueled concerns of a shock result, and unnerved policymakers enough to prompt warnings from the SNB.

The central bank, whose foreign assets range from German government bonds to shares in stock market heavyweights, reckons a ‘Yes’ outcome would make it harder for it to intervene to hold down its franc currency, which tends to strengthen during times of market stress.

Supporters of Vollgeld—or sovereign money—say it would make the Swiss financial system safer.