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  • Writer's pictureThe San Juan Daily Star

Global equity funds rack up robust weekly inflows on rate cut bets

Global investors returned to equity funds in the seven days to June 5, powered by optimism that major central banks would cut interest rates as inflation moderated, while a drop in U.S. bond yields also lifted risk sentiment.

Investors pumped in a net $8.9 billion into global equity funds during the week, in contrast to about $4.4 billion worth of net withdrawals a week ago, data from LSEG showed.

This week, the European Central Bank and Bank of Canada cut their interest rates, boosting global stocks to record highs.

Investors are now waiting for the U.S. Federal Reserve’s meeting scheduled for next week for insights about the potential rate cuts this year.

Boosting investor sentiment, Treasury yields slid. The yield on benchmark U.S. 10-year notes hit a two-month low of 4.275% on Wednesday.

European equity funds saw $3.2 billion worth of net buying, marking the sixth weekly inflow in a row. Asian and U.S. equity funds, meanwhile, witnessed about $3.09 billion and $2.29 billion worth of net purchases.

Among sectoral funds, utilities received a robust $996 million, the biggest since May 2022. Metals & mining, and financials also added $459 million and $424 million, respectively.

Simultaneously, global bond funds drew roughly $14.56 biWall Street stocks ended slightly lower on Friday in choppy trading after stronger-than-expected U.S. jobs data pointed to a robust economy but prompted worries the Federal Reserve may wait longer to cut interest rates than many investors had hoped.

The U.S. economy generated about 272,000 jobs in May, far more than the 185,000 analysts had forecast, according to a Labor Department report. The unemployment rate inched up to 4%.

The benchmark S&P 500 slipped immediately after the report while U.S Treasury yields climbed as traders slashed bets on a September rate reduction. The index recovered and briefly hit a fresh intraday record high as investors noted the data pointed to underlying economic health.

It finished slightly lower, with the utilities, materials, and communication services stocks among the biggest drag. Financials and technology advanced ahead of others.

For the week, the S&P 500 gained 1.32%, Nasdaq rose 2.38%, and the Dow added 0.29%.

“This tells you there’s certainly not going to a cut in the short term, and with the bond yields going back up it’s putting a lot of pressure on the risk-on trade, which is probably small caps,” said Sandy Villere, portfolio manager at Villere & Co in New Orleans.

“It’s just a function of interest rates and maybe a little higher for longer, and people have to recalibrate for that type of environment,” he added.

Traders now see a 56% chance of a September rate reduction, according to the CME’s FedWatch tool. Investors will eye U.S. inflation data next week and the Federal Reserve’s two-day policy meeting, which ends on June 12.

“No one expects the Fed to cut (rates next week), but will they open the door for a cut as soon as September is the big question on everyone’s mind,” said Ryan Detrick, chief market strategist at the Carson Group, adding he still sees a September reduction on the table.

The Dow Jones Industrial Average fell 87.18 points, or 0.22%, to 38,798.99, the S&P 500 lost 5.97 points, or 0.11%, to 5,346.99 and the Nasdaq Composite lost 39.99 points, or 0.23%, to 17,133.13.

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