dollar-funding crunchwhich has been plaguing markets and was most recently highlighted by the Bank for International Settlement's Hyun Song Shin and Economist Carmen Reinhart. While some analysts expect the dollar to strengthen under his presidency that's not necessarily what's going to constrict funding, according to new research from Deutsche Bank AG strategists George Saravelos and Robin Winkler.Trump's surprise win in the U.S. presidential elections has set the stage for an intensification of the
Instead, the election of Trump sets the stage for a further balkanization of global money markets and an impediment to the free flow of trillions of dollars' worth of different currencies, including a curtailment of cross-border transactions and the possible end of currency swap lines offered by friendly central banks, the strategists argue.
"We expect de-globalization to negatively impact financial markets, particularly the availability of dollar funding," they write. "Reserve manager commercial bank dollar deposits are falling. Central bank swap lines can no longer be taken for granted. The potential repatriation of more than a trillion dollars of offshore U.S. corporate earnings could aggravate dollar funding pressure further."
A confluence of post-crisis regulation, diverging monetary policies and money market reform is said to have restricted the availability of dollar funding, with the cost to convert local currency payments into dollars reaching its highest levels in about three years for both the euro and the Japanese yen — despite abundant levels of global liquidity. That trend could be made "permanent" under a Trump regime, Deutsche Bank says, as the President-elect's policies reduce the movement of capital around the globe and spark another round of cross-border deleveraging.