Investors Cut Cash Holdings As Market Focus Shifts To Inflation

Investors cut their cash holdings for the first time in eight weeks in the week to Wednesday, while shedding equities and gold, according to a report from BofA Global Research on Friday.

Market focus has shifted to inflation and the outlook for monetary tightening in recent weeks as fears around banking stocks receded and a market measure of volatility fell to its lowest level since November 2021.

Cash funds saw outflows of $65.3 billion, BofA said, citing EPFR data. Bond funds recorded inflows of $4.6 billion, while investors sold $2.6 billion of global stocks and pulled $70 million out of gold funds.

Last week data showed U.S. consumer prices rising in March, while data this week showed signs of the labor market cooling.

"Core inflation in big economies remains stubbornly high," the BofA analysts said, adding that inflation is being aided by structurally low unemployment rates.

Almost all central banks are on hold or close to the end of the rate hike cycle, thus "locking in" high inflation, they said, "as is (the) trajectory of government spending, deficits and debt".

Emerging market debt funds saw their first weekly inflow in 10 weeks, of $600 million. Investors put $2.3 billion into emerging markets equities, the biggest inflow in four weeks.

BofA said its bull and bear indicator - a measure of market sentiment that runs from 1 to 10, with a higher reading more bullish - jumped from 2.3 to 2.8 on "stronger bond inflows, EM stock inflows, (and) improving credit technicals".