Finimize - 👀 Investors broke a fund record

What’s going on here?

Investors went mad for US money market funds, leaving them stuffed with a record-breaking $6.8 trillion.

What does this mean?

Money market funds park cash in short-term, super-safe debt like government bonds. Investing in one is similar to keeping cash in a savings account, in that you can dip in and out easily. And since the Federal Reserve’s (Fed) bumper interest rate cut, investors have piled $126 billion into these funds – even though their average returns have fallen. From record highs of 5.2% in December, fund yields are currently sitting around 4.9%. But, wary of a potential recession, it seems investors are playing it safe – despite data suggesting the US is in the clear, at least for now.

Why should I care?

For markets: So much for stocks.

Now, rate cuts would usually make stocks look more attractive – not money market funds. Lower interest rates reduce returns on things like bonds and savings accounts, so investors tend to eye up riskier assets for more lucrative opportunities. Plus, stocks and corporate bonds have historically performed well in the year following a rate cut… If the economy holds steady, that is.

The bigger picture: This (probably) isn’t forever.

It’s possible that Americans are just stashing their cash until they decide where to put it, sure. But skeptics aren’t convinced that money will be flooding into stocks anytime soon, and you can see why. Economic concerns aside, stock valuations are touching the ceiling – leading many investors to wonder whether there’s any room for them to grow. Plus, there’s the small issue of the big US election looming ahead. Either way, data shows that money market fund assets usually peak around nine months after the Fed starts trimming rates – so even if the cash is destined for stock markets, we could be waiting a while.

What’s going on here?

The election of a new ruling party leader in Japan caused futures – where investors agree to buy or sell an asset at a set price on a future date – of the country’s Nikkei 225 stock index to drop 4%.

What does this mean?

Elections spell economic uncertainty by nature: a new, different government can easily mean fresh policies with difficult-to-predict outcomes. Japan’s recent leadership contest is a prime example. See, a “continuation” candidate with similar policies to the previous head honcho was expected to win. Instead, a totally different contender won the leadership election and will become prime minister next week. The result means current policies of uber-low interest rates – ones that encourage a weaker yen and buoy the export industry – will probably change. So it makes sense that the yen rallied 2% against the US dollar while Nikkei 225 futures stumbled.

Why should I care?

For markets: It’s up in the air, for now.

With the country’s surprise new leader, it’s expected that the Bank of Japan will push interest rates higher – probably in December. And that new leader has also hinted at increasing taxes on companies' profit. The reasoning: big businesses – which have seen profit spurred on by a weaker yen – ought to share the burden of inflation. So far, it’s been Japanese consumers contending with the harshest pinch from higher costs.

The bigger picture: No one’s an island… except Japan.

If interest rates are, indeed, on the way up in Japan, that’ll be quite the contrast to most of the developed world. Elsewhere, they’re largely being trimmed as inflation concerns ease. That matters: the difference between interest rates is a key driver of currency movements. The Japanese yen fell against a host of major currencies over the last couple of years, as many central banks raised interest rates while those in the Land of the Rising Sun stayed put. But as rates are now heading north in Japan and south elsewhere, the exact opposite is happening.