Investors jump into equities and bonds in Goldilocks scenario – BofA
Investors poured money into equity and bond funds and moved money out of gold in the week to Wednesday, according to BofA Global Research, taking heart from a string of positive data points and policy changes.
“You don’t get more Goldilocks than that,” the report said of Thursday numbers that showed U.S. consumer prices dipped by 0.1% month on month and unemployment claims were a muted 205,000, a reference to something being “just right” as in the fairy tale.
The lower CPI data offered hope that inflation was now on a sustained downward trend, which should allow the Federal Reserve to further scale back the pace of its interest rate increases next month.
Bofa also pointed to the impact of China reopening its borders after COVID-19 restrictions, lower EU energy prices and encouraging U.S. fiscal and labour market data, as all factors behind the moves.
The report found there were weekly flows into funds investing in bonds ($17.5bn), cash ($8.3bn), and stocks ($7.2bn), and out of gold ($0.4bn).
BofA also said there were the largest inflow to investment grade bonds since July 21 ($10.4bn), and the largest inflow to emerging market debt and emerging market stocks since April 22 ($3.6bn).
The analysts said the moves were a “classic January reversal” with the “2022 losers of crypto, (US Treasuries), China, credit (and) stocks smashing ’22 winners of cash (and)commodities”.
Europe’s benchmark STOXX index is trading at nine month highs, Hong Kong’s Hang Seng Index is at a six month top, and even bitcoin hit its highest in two months after the U.S. inflation data.
“Flows show the chase is on,” said Bofa.