U.S. stocks favored as bond buying spree slows, BAML says

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., September 12, 2019. REUTERS/Brendan McDermid

LONDON (Reuters) - U.S. equity funds attracted $17.1 billion last week, pulling cash from government bonds, Bank of America Merrill Lynch said on Friday, as investors turned to riskier assets amid hopes for a U.S.-China trade truce and central bank rate cuts.

Global policy makers are smashing Wall Street bears “out of the ball park”, BAML Chief Investment Strategist Michael Hartnett said, pointing to the intention of policy makers to reverse bearish sentiment.

The European Central Bank cut interest rates deeper into negative territory on Thursday and pledged indefinite bond purchases, driving European stocks higher. The U.S. Federal Reserve is expected to cut rates by at least 25 basis points next week.

With easing measures in place and U.S. and China sending positive signals on trade, investors fled safe havens and favored stocks, leading to the second-biggest government bond-fund redemptions ever.

Sovereign funds saw outflows of more than $6 billion in the week to Sept. 11, according to the report, based on EPFR. Some $14.4 billion flowed into equities, some of the biggest inflows since March 2018, but that was entirely due to U.S. increases.

Investors continued to shun European equities, however, pulling out $400 million.

BAML said the ongoing “hate rotation”, in which investors are buying value stocks and exiting growth stocks, is expected to continue.

MSCI USA Enhanced Value Index outperformed the US Growth index by 6 percentage points in five trading days, the second largest relative return in the past 18 years.

(Removes extraneous words from first paragraph.)

Reporting by Thyagaraju Adinarayan; editing by Josephine Mason, Larry King