Friday, June 15 09:07:21
The ISEQ is higher this morning at 3,026, up 19 points as Central Banks from the G20 commit to dealing with any fallout from the Greek elections. Markets are still nervous however and some volatility is expected as we head into this important weekend. Davy Stockbrokers have some significant comments on intervention this morning:
Last night's Mansion House speeches by UK Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King set out new measures to stimulate the economy, worth £100bn, including long-term funding for UK banks. Governor King also gave a clear hint that additional quantitative easing (QE) is likely in the near future, indicating that the case for further monetary easing is growing.
A new "funding for lending" scheme was announced that will provide funding to UK banks for an extended period of several years, below market rates, but linked to the performance of banks in sustaining lending to the non-financial sector. This new scheme is expected to support £80bn of new lending from UK banks. An additional immediate measure is that the Bank of England will provide £20bn of six-month liquidity for UK banks over the next four months.
The new scheme will link long-term funding availability from the Bank of England directly to commercial banks' lending growth to the real economy. However, if economic conditions deteriorate further, UK banks could decide to forgo longer-term funding rather than take on additional risks in lending to households and companies. Past "lending commitments" have had little success in stimulating new lending, precisely because new lending growth has proven difficult to measure and UK banks have been under pressure to raise capital and deleverage their balance sheets.
So the danger remains that UK banks may simply acquire longer-term funding from the new scheme but without stimulating lending to the real economy. Nonetheless, last night's announcements are a positive development, with pressure on UK bank funding now set to be alleviated by QE and central bank funding according to Davy Stockbrokers.