European equities witness biggest weekly inflow in more than a year By Investing.com

Stocks and bonds accounted for the bulk of flows in the past week, with European equity funds seeing their largest inflow since February 2023, Bank of America said in a Friday note.

Equity funds attracted $11.9 billion, bonds $11.7 billion, while $3.7 billion exited money-market funds, based on EPFR Global data cited by BofA.

Europe saw its third consecutive week of inflows, with the largest since February 2023 at $1.1 billion.

Technology funds experienced outflows for the past two weeks, totaling $900 million, marking the first back-to-back outflow since April 2023. Meanwhile, utilities had their largest inflow since November 2022 at $700 million.

Strategists at Bank of America suggest that the “Anything But Bond” trade should reverse in the second half of the year, with the 30-year US Treasury serving as the best hedge for weaker nominal growth.

They note that credit and stocks are reacting bullishly to increasing “soft landing” odds but believe “hard landing” odds are too low, “given the stagnation of real retail sales, stalling of global PMI upturn, [and] labor market shift from “unambiguously strong” to “ambiguously strong” to “ambiguous”.

US equities remain in a late secular bull market with “no change in leadership since ’09, and no recession to change it. Strategists also highlight that current valuations are inconsistent with the start of a new bull run.

In terms of macroeconomic developments, BofA predicts that US CPI will be between 3.75% and 4.5% by the November US Presidential election, while “the Fed wants to cut at first opportunity.” Inflation in 2024 has prevented the Fed from reducing rates, thus extending the tight monetary policy, the strategists noted.

Regionally, the US experienced its fourth week of inflows at $12.1 billion, while emerging market (EM) stocks had their second week of outflows at $2.5 billion, and Japan saw a resumption of outflows at $900 million.

In fixed income, investment-grade (IG) bonds had their smallest inflow in 21 weeks at $3.3 billion, high yield (HY) bonds saw their second week of inflows at $1.9 billion, Treasuries had their second week of inflows at $4.9 billion, EM debt inflows resumed at $400 million, and bank loans had their fourth week of inflows at $800 million.