LONDON (Reuters) - Financial market flow trackers at Bank of America Merrill Lynch have urged investors to stay “summer bullish” betting that expected U.S. interest rate cuts will boost risk assets like emerging market stocks and U.S. banks.
Over the last week, however, they said a combined $7.1 billion had been pulled out of equities in every major region of the world, while $13.7 billion money had been poured into traditionally safer bonds in the 29th week of inflows in a row.
“Positioning + Profits + Policy heading into FOMC (Fed meeting on July 30-31) keep us summer bullish risk assets,” BAML’s investment strategists wrote in their weekly ‘Flow Show’ note.
Laying out two scenarios they said a 25 basis point cut next week which turns out to be the start of a cycle of rate reductions would be best for bonds, whereas a 50 bps “one & done” move would be best for stocks.
The “Fed needs to steepen yield, weaken US$, boost base metals to give cyclicals a bid...we think they will,” BAML said.
The record highs on Wall Street and long-term peaks in many other major bourse was something to watch, they added though. At present 67% of global equity indexes trade above 50- and 200-day averages which are closely watched by market chartists.
“(Market) positioning becoming less positive for risk assets.”
Reporting by Marc Jones; editing by Thyagaraju Adinarayan