Global money market funds experienced their highest weekly inflows in nearly six months, with investors cautious about the health of the U.S. economy and concerned that further rate cuts this year could signal deeper economic troubles.
Investors bought safer money market funds totaling about $98.32 billion, LSEG Lipper data showed, marking their largest weekly net purchase since April 3.
A weak consumer sentiment report last week raised concerns among investors about the health of the labor market, prompting worries that the Fed’s rare 50 basis point rate cut the previous week was in response to a sharp economic slowdown.
“Despite market expectations for an unwind of the huge pile of money market assets to provide a tailwind as it flows back to risk assets, the category has continued to garner flows,” said Thomas Poullaouec, Head of Multi-Asset Solutions APAC at T. Rowe Price.
“Perhaps the start of rate cuts could entice some investors to come off the sideline, but with a gradual path priced in, it is unlikely to have a huge impact.”
The Q3 scores show world stocks and U.S. Treasuries both up around 6%, gold almost 15% higher, the yen up a whopping 11%. Oil is 17% lower and central banks have just delivered the biggest batch of interest rates cuts since the COVID-19 pandemic.
The storms started when the normally docile yen went wild at the idea of higher Japanese rates at almost exactly the same time U.S. economic data started looking queasy.
In just a few weeks, MSCI’s main world equity index shed $6 trillion in one of the fastest sell-offs in years, especially for Big Tech. Traders went from pricing one or two U.S. rate cuts this year to five or six.
“The biggest thing that happened in Q3 was that the yen carry trade broke down,” Societe Generale’s Kit Juckes said, explaining the strategy of borrowing cheaply in Japan to buy higher-yielding assets elsewhere.
“That, along with the first pieces of weak U.S. data, really changed the market.”
The prospect of lower borrowing costs did the trick though. By the end of August, world stocks had rebounded and Chinese markets were about to make a remarkable turnaround of their own.
As Beijing turned on the stimulus taps, including lower rates and measures aimed at the ailing property market, Chinese stocks have just notched up their strongest week since 1996 and real estate shares have rocketed by a third.
China’s largesse has also helped spur the biggest quarterly spike in both emerging market stocks and the main global volatility gauges since 2022.
“China needs to recover to see a turnaround in the asset class,” said Claus Born, an emerging markets equity portfolio manager at Franklin Templeton. “China’s influence is very important”.
The LSEG data showed investors offloaded a net $10.43 billion worth of global equity funds during the week, booking the sharpest weekly outflow since June 12.
Although U.S. equity funds saw $22.43 billion in net sales, investors actively bought European and Asian equity funds, adding $5.88 billion and $5.29 billion respectively.
Global bond funds attracted investors for the 40th consecutive week, gaining a net $13.74 billion.
Dollar-denominated short-term government bond funds drew$3.21 billion, the highest in four weeks. Investors put $1.68 billion into high-yield and $1.11 billion into Euro-denominated global bond funds, respectively.
Gold and other precious metal funds were popular for the seventh successive week, securing $1.11 billion worth of net purchases. Energy funds, meanwhile, witnessed $128 million worth of outflows, the second successive week of net sales.
Data covering 29,559 emerging market funds showed investors exited equity funds for a sixteenth successive week, worth $261 million on a net basis. By contrast, bond funds gained $1.22 billion, registering a fourteenth consecutive week of inflows.
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