Deep-sea funds see inflation as transitory, according to BofA survey – ShareCafe

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Major fund managers believe the current explosion in inflation will be temporary, and transactions based on these cost pressures that last longer are now the most “overcrowded” in the market, according to the global survey from Bank of America fund managers for June.

The results of the survey were released the day the U.S. Federal Reserve began its final two-day meeting in which inflation dominated discussions, as well as the start of the scaling back of the massive program of the bank’s quantitative easing of $ 120 billion per month.

And, by accepting the Fed’s contention that the current inflationary surge is “transient,” the big fund managers have moved closer to total investment.

The survey indicates that investors are “positioned bullish for permanent growth.”

Overall, investors see the market recovery continuing and in doing so, they have reduced liquidity levels to 3.9%, from just over 4% in May and a high of 4.8% in February of this year.

Bank of America says this is a contrarian “sell” signal, as some might see it as a sign that the “herd” is taking an overly bullish stance.

At the same time, fund managers cut bond allocations to their lowest level in three years – another sign that the bulls are leading the way.

Some 73% of those polled said they saw inflation as “transient”, while only 23% said it was permanent.

The survey involved 224 panelists with $ 667 billion under management and was conducted from June 4 to 10.

Interestingly, commodities have replaced bitcoin as the most ‘over-the-top’ or crowded trade in the market right now as investors seek a hedge against the possibility of inflation remaining high.

Commodities typically attract a lot of investment money when inflation fears are high, and the most recent readings have shown peaks in major economies not seen in more than a decade.

The high levels of inflation were again confirmed on Tuesday with the May Producer Price Index rising at an annual rate of 6.6% last month.

This is the largest increase since the US Department of Labor began tracking in August 2010.

But even though investors broadly agree with the Fed’s view that the inflation explosion will pass, they still see the central bank taking the first steps to tighten policy soon.

Respondents in the survey believe the Fed should start talking about cutting its $ 120 billion in monthly bond purchases in the coming months, with 63% expecting a signal in August or August. September.

Meanwhile, 38% of attendees see the hint coming at the annual Jackson Hole summit in August, while 25% expect progressive discussions to begin at the September Federal Open Market Committee meeting.

But any move to cut bond purchases could generate a negative market reaction – no matter how hard the Fed heats up the market to the coning decision.

Respondents to the survey felt that a taper tantrum in the bond market – that is, a sharp rise in yields – was the greatest “tail risk” or an unlikely event that could cause significant damage.

Yields on 10-year US Treasury bonds peaked at 1.77% on the last day of March on speculation of a surge in prices the Fed will start lowering or even raising interest rates sooner than expected .

Those fears have subsided – bond yields are around 1.5% and fell below 1.4% last week for a brief period as investors accepted that the surge in inflation would dissipate in the months to come. come.

But there is one influential market figure who is not so sure.

Jamie Dimon, CEO of JP Morgan (America’s largest bank), said on Monday that the bank was indeed storing cash, not deploying it because he believed rates would eventually rise, at any time.

According to Dimon, JPMorgan has a lot of money and capacity. And will be very patient because there is a good chance that the current rise in inflation is more than transient.

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