After reading the latest title from BofA’s Michael Hartnett …
… either the BOJ will need to urgently find a safe space, or the BofA’s credit strategist will be promptly fired for hate speech.
Joking (we hope) aside, this is what the latest Fund Flow report from BofA reveals:
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On Japan stimulus
- Bring on the Herikoputa! BofAML says too early for pure BoJ helicopter announcement/debt monetization.
- Global risk bid if…BoJ announces “stealth” helicopter stimulus, i.e. bond purchases “coordinated” with fiscal stimulus + no rate cut…most bullish Nikkei, Eurozone, global banks, cyclicals, US$…less bullish bonds & EM
- Global risk offered if…BoJ disappoints with no change and/or deeper negative rates & modest rise in ETF purchases…bearish stocks, banks; bullish Yen, Treasuries, bond substitutes, EM
- July FMS positioning shows investors most bearish Japanese equities in 3.5 years & Japan ETFs have seen biggest selling by US private client YTD, i.e. positioning favorable to Japan upside, yen downside (Chart 1)
- Japan fiscal stimulus has not solved deflationary malaise in recent decades; but Japanese fiscal stimulus announcements since 1990 have caused NKY to pause and then rally 9% in subsequent 6 months (Table 1).
And here are the weekly fund flows:
On Weekly Flows
- Gold sold: inflows to bonds ($7.9bn), redemptions from equities ($5.4bn), and largest redemptions from gold funds ($0.5bn) in 8 months
- EM en fuego! largest 4-week inflows to EM debt funds on record ($14bn – Chart 3); 4th consecutive week of EM equity inflows (longest inflow streak since Sep’14)
- Summer “pain trade“: long EU stocks, short EM debt…contrarians note 25th straight weeks of EU equity outflows versus euphoric EM debt inflows
Asset Class Flows (Table 3)
- Equities: $5.4bn outflows (note divergence between $3.0bn ETF inflows & $8.4bn mutual fund outflows)
- Bonds: chunky $7.9bn inflows (inflows in 15 of past 17 weeks)
- Precious metals: largest outflows since Dec’15 ($0.5bn) (first outflows in 9 weeks)
Fixed Income Flows (Chart 4)
- $3.4bn inflows to EM debt funds ($14bn inflows past 4 weeks = largest on record)
- $0.7bn inflows to HY bond funds (4 straight weeks)
- $3.2bn inflows to IG bond funds (inflows in 20 of past 21 weeks)
- 45 straight weeks of inflows to Munis ($0.7bn)
- 7 straight weeks of inflows to TIPS ($0.3bn)
- $0.6bn outflows from Govt/Treasury funds (outflows in 4 of past 5 weeks)
Equity Flows (Table 4)
- Europe: $4.2bn outflows (25 straight weeks of outflows)
- EM: modest $0.4bn inflows (4 straight weeks)
- Japan: $0.7bn outflows (2 straight weeks)
- US: small $0.4bn outflows
- By sector: 4 straight weeks of inflows to REITs ($0.1bn); largest outflows from healthcare in 4 weeks ($0.4bn)
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