BANKS failing to lend to each other could undermine any recovery in the economy, according to Quilter head of fixed income Oliver Stones.

Speaking at a client briefing in the island entitled ‘Green Shoots – Myth or Reality’, Mr Stones identified areas of promise in the markets as well as those to avoid.

Looking specifically at US consumer sentiment he said there were definite signs of improvement, although ‘recovery was tenuous at best’.

Improvements were seen in the Michigan University Consumer Sentiment Index, which had recently shown clear signs of bottoming out, and that global trade had begun picking up, as evidenced by the Baltic Dry Index, which tracks worldwide international shipping prices of dry cargo, as well as China’s purchasing managers’ index and Taiwan’s trade figures.

However, he warned caution as the disparity between the London Interbank Offered Rate and the base rate was still too wide for there to be a conclusive recovery.

‘Primarily this is a problem because Libor is the much more important rate to the capital markets given it underpins up to 300 trillion dollars-worth of global financial assets,’ said Mr Stones (pictured).