Barclays claims that the recent banking crisis in the US and Europe has caused investors to become more risk-averse.
As a result, analysts predict that low-risk money market funds will attract approximately $1.5 trillion (£1.2 trillion) in investment over the next year, instead of traditional investments such as stock markets.
While this may minimize investors’ losses, it could restrict business growth by making it harder for companies to raise funds. Money parked in all money-market funds increased to a new high in the previous month. The total assets of money-market funds amounted to $5.2 trillion as of March 29, with their cash pile rising by around $304 billion in just three weeks, according to data from the Investment Company Institute.
Barclays warns that the ongoing exodus from banks and prime funds, which invest in riskier debt, will only intensify the trend for greater safety. Joseph Abate, Barclays’ money-market strategist, suggests that institutional investors have become cautious about taking unsecured bank risks by keeping deposits above the $250,000 insurance cap.
Ahead of the jobs figures, the US markets were subdued.
Investors are anticipating the release of jobs data this afternoon to determine the impact of the Federal Reserve’s aggressive policy tightening on the US economy, resulting in a subdued premarket trading session on Wall Street.
This week’s weak data from the services and manufacturing sectors has indicated a slowdown in growth, leading the market to hope for a halt in interest rate hikes. CME Group’s Fedwatch tool indicates that Fed fund futures are showing a 58.2% chance of the US central bank pausing its monetary tightening in May and a 45% probability of a rate cut at the Fed’s July meeting.
During pre-market trading, the Dow Jones Industrial Average remained steady, while the S&P 500 decreased by 0.1%. Nasdaq 100 futures fell by 0.3%, with major technology and growth shares such as Apple, Tesla, and Nvidia dropping between 0.2% and 1% in premarket trading.
The benchmark S&P 500 and the technology-heavy Nasdaq are poised to record declines for the first time in four weeks.
