There have been “massive” outflows from capital markets in the past week, but although they brought Bank of America Merrill Lynch’s “bull and bear” indicator close to the “buy” signal, they haven’t managed to trigger it.
The year-to-date capital flows seem to show a dramatic change in the way investors perceive risk in the stock markets. Emerging market equities, Japan and the financial sector seem to have turned from risky assets into “safe havens”.
Everybody is waiting for Jay Powell, the new Fed Chair, to set out his vision this week. The main question is: will there be a “Powell Put” just as there has been a Greenspan put, a Bernanke put and a Yellen put?
The past week has not been encouraging for investors, with many asset classes haemorrhaging funds at increased speed.
The week before that, on January 30, the Bank of America Merrill Lynch’s Bull/Bear indicator triggered a sell signal for the first time in five years, and markets sold off.
The Bank of America Merrill Lynch Bull/Bear indicator last week hit the highest level since its last sell signal, just as U.S. President Donald Trump took credit, once again, for the surge in the stock market.
Sentiment was getting even closer to triggering a “sell” signal in the stock markets last week, as investors’ enthusiasm climbed even more.
Investors’ optimism remained at very high levels, despite the beginning of tapering of quantitative easing by the European Central Bank (ECB), tensions with North Korea and the Catalan crisis.
The air came out of the bond bubble last month, when bond funds recorded the highest five-week outflows in three years and a half, according to capital flows data analysed by Bank of America Merrill Lynch economists.