Bank of America Merrill Lynch (BAML) said on Friday its market sentiment indicator showed the most bearish investor positioning since March 2016 as asset managers continued to pile into safe haven bets such as gold and investment grade bonds.
The bank’s “Bull & Bear” gauge of market sentiment has dipped to 0.6, down from 1.3 a week ago, signaling a “buy”, the bank’s strategists said.
Cumulative gold fund inflows in the week to Wednesday reached $48.4 billion, surpassing the previous high in January 2013 in a clear sign of risk aversion, the bank said, citing EPFR data, adding that gold was now vulnerable to a risk-on sentiment in the autumn.
There was “zero sign” of investors being worried about a bond bubble, with chunky inflows of $7.9 billion to investment-grade bond funds and $3.5 billion to government bond funds. Meanwhile high-yield bond funds suffered small outflows of $300 million.
There was also no sign of an imminent pop in the bond bubble, it added, and limited contagion to other emerging markets from Argentina’s crisis.
“European policy impotence not yet visible in EU investment-grade credit spreads despite Germany in recession,” it said.
European Central Bank policymakers are leaning toward a stimulus package that includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, Reuters reported earlier this week, citing five sources familiar with the discussion.