Global equity funds experienced heavy outflows in the week to Feb. 7, aligning with Federal Reserve Chair Jerome Powell’s remarks on US inflation and a strong jobs report, as markets reassess bets of the Fed’s interest rate decisions.
According to data from LSEG, investors withdrew a net $13.38 billion from global equity funds, the most in a week since June 21, 2023.
This response was shaped by a US Labor Department report indicating accelerated job growth and the most substantial wage increase in nearly two years in January, affecting projections for rate cuts.
The US equity funds suffered about $11.74 billion worth of net selling, the biggest weekly outflow since Dec. 2022. On the contrary, investors poured about $3.44 billion and $1.33 billion into Asian and European funds, respectively.
Energy, utilities, and metals & mining funds saw about $608 million, $526 million and $448 million worth of net disposals. Conversely, healthcare funds received about $760 million in inflows.
Meanwhile, global bond funds secured inflows for the seventh successive week, valuing about $6.33 billion on a net basis.
Dollar-denominated global bond funds received a noteworthy $2.19 billion, the highest since at least March 2022. Global government and corporate bond funds received inflows worth $593 million and $553 million, respectively.
Concurrently, money market funds garnered about $26.95 billion in inflows as they saw a second successive week of net buying.
In commodities, energy funds saw $255 million worth of net buying, the largest since Oct. 25. However, precious metal funds witnessed $423 million worth of outflows, a second successive week of net selling.
Data covering 29,635 emerging market funds showed bond funds drew $314 million in their first weekly net purchase since Jan. 17, while equity funds witnessed a marginal $25 million worth of net selling.
Meanwhile, US Treasury yields rose on Friday and two-year yields hit an almost two-month high before key inflation data is due next week, recovering from a brief dip after revisions to inflation data from late last year were relatively modest.
Tuesday’s consumer price index (CPI) for January will provide the next clues on when the Federal Reserve is likely to begin cutting interest rates.
Jobs data last week, which showed that employers added more jobs than expected last month while wages increased by the most in nearly two years, has raised some concerns that price pressures may surprise to the upside.
If the data shows inflation is continuing to moderate, however, that could give the Fed more confidence that it can cut rates.
“The market is still trying to get a sense on how much the Fed can lower interest rates and how quickly, and I think a softer CPI reading next week would certainly go a long way in encouraging the Fed that inflation is under control,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.
Benchmark 10-year note yields reached 4.195 percent , the highest since Jan. 25. Two-year yields hit 4.499 percent , the highest since Dec. 13.
The inversion in the yield curve between two-year and 10-year notes was little changed on the day at minus 30 basis points. – Reuters
