June 14, 2019 / 9:54 AM / 4 months ago

Investors pile into bonds, equities on U.S. rate cut hopes

LONDON (Reuters) - Investors pumped more than $4 billion into bond and equity funds in the past week, Bank of America Merrill Lynch (BAML) said on Friday, prompted by hopes of U.S. interest rate cuts as the Federal Reserve aims to counter a slowing global economy.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 5, 2019. REUTERS/Brendan McDermid

For the week to June 12, bond funds had inflows of $2.5 billion and equity funds saw $1.6 billion inflows, the highest in 13 weeks, BAML said, citing data from flow tracker EPFR.

The data is the latest sign that expectations of a more accommodative U.S. central bank following comments by Fed chairman Jerome Powell last week had pushed investors into both safe haven bonds and riskier assets like stocks.

Powell said the Fed was closely monitoring the implications of the trade war between the United States and China on the world’s No. 1 economy and would “act as appropriate to sustain the expansion”.

Those comments, on June 4, were interpreted as a sign the central bank would take a more proactive, rather than reactive, approach to interest rate cuts, with two cuts expected.

The comments, aimed at blunting the impact of the escalating trade tensions, have helped drive global stocks higher, with the S&P 500 index and Dow Jones industrial average last Friday both registering their biggest weekly gains since November.

Investment grade bonds were favorites among investors with $2.3 billion in flows last week, suggesting they were cautious ahead of the Fed meeting next week and the G20 summit at the end of the month.

In equities, stocks in defensive sectors such as healthcare, consumer products and utilities outshone other sectors.

Over the past six months, a record $46 billion has ploughed into government bond funds, while investors have largely shunned equities as trade war worries prompted them to take shelter in safe-haven assets.

Overall, $185 billion has flowed into bonds so far this year, while $154 billion has been drawn out of equities.

European equity funds remained unloved with investors pulling $600 million, marking the 64th week of outflows in the last 66.

Reporting by Thyagaraju Adinarayan, Editing by Josephine Mason and Gareth Jones

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