The UK exchange-traded fund (EWU) is taking its hits like most Euro ETFs and since it has a few finanncial giants like Barclays with heavy weightings in its ETF basket, it is trading at only about 11 times earnings. The market has also been punishing high yielding currencies like the pound. Sterling fell below $2 for the first time in over six-weeks today as expectations for further UK interest rates rises tumbled after inflation data came in far weaker than expected.
Barchart reports that the European Central Bank today injected extra reserves into the banking system for the fourth consecutive business day. However, the ECB only injected 7.7 billion euros ($10.5 billion) and said that euro interest rates are "close to normal." The Bank of Japan today returned to normal operations and drained $13.6 billion from the banking system.
This is just a snapshot of the flurry of activity by central banks around the world to deal with what is perceived as a potential global liquidity crisis. But while monetary authorities in the eurozone, US, Japan, Canada, Australia and Switzerland have injected cash into the global banking system, the Financial Times reports that the Bank of England has not lifted a finger. That is despite overnight rates at one point reaching 75 basis points more than its 5.75% target rate.
The British are playing it cool because some 57 UK banks can borrow limitless cash at any point from the Bank of England, but only at a price of 1% above the target rate. This is both sensible, simple and elegant. Banks can access cash but will pay a price for poor planning and strategy.
By Carl Delfeld of the Chartwell ETF Advisor