Record Cash Inflows Into Money Market Funds: BofA Weekly Finance Update

Summary

  • The first week of the year witnessed record-breaking cash inflows into money market funds, with cash receiving $123.1 billion reported by BofA strategists.
  • Bonds and stocks also attracted significant inflows, with $10.6 billion and $7.6 billion respectively, while gold saw an outflow of $800 million.
  • BofA strategists emphasized the divergent trends of a shrinking ISM, robust payrolls, vigorous stocks, and a decelerating job openings, stressing the importance of Federal easing in H1 to prevent corporates from reducing jobs and capex in H2.

Record-Breaking Inflows

In the first week of the year, money market funds saw an unprecedented level of cash inflows, as indicated by BofA strategists. This record-setting week ended on January 3, with cash influxes amounting to a staggering $123.1 billion. Meanwhile, bonds and stocks also experienced substantial inflows, tallying $10.6 billion and $7.6 billion respectively. On the other hand, gold witnessed an outflow of $800 million during the identical period.

Contrasting Market Trends

Highlighting the opposing market trends, the BofA strategists pointed out the contracting ISM, resilient payrolls, and strong stocks, alongside a slowdown in job openings. BofA further stated that it is of utmost importance for the Federal Reserve to ease in H1 to prevent corporates from cutting jobs and capex in H2.

Fund Flow Observations

A trend to note in fund flows is the consecutive 10-week inflows into investment-grade bonds, marking the largest since July 2023 at $8.0 billion. Additionally, equities experienced inflows in eight out of the last 10 weeks, amounting to a total of $82 billion over that period. It’s worth noting that energy saw its seventh consecutive week of outflows, the largest since July 2023, amounting to $1.0 billion.

Regional Equity Breakdown

As per the regional breakdown of equities, the US experienced its second consecutive week of inflows, tallying at $3.9 billion. Likewise, emerging markets reported their fifth consecutive week of inflows, amounting to $3.7 billion. Japan enjoyed its second week of inflows at $80 million, while Europe resumed outflows at $900 million.

In conclusion, such market trends and fund flows can, in turn, have significant bearings on forex and trading, especially impacting assets such as cash, bonds, stocks, gold, and energy.

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