Fed Eases Liquidity Rules

I have been talking extensively about the LCR which is now at 100%, which puts a burden on banks because they cannot use these high quality liquid assets due to the regulation.

The Fed now announced they would ease these liquidity rules to about 85%. This is a huge drop in liquidity ratio. Since these banks now have more liquidity, they will probably start using it in the economy (for example loans). This would be good for stocks (especially foreign banks) and inflation.

ECB prepares for QE and rate cuts

Next week, on 12th September, the ECB will cut rates to -0.5% and initiate QE.

 

Expect more pain for the European banks. Expect more negative rated bonds and expect higher gold prices.