Europe back in vogue as Trump bulls pull in horns: BAML

Traders work at their desks in front of the German share price index DAX board in Frankfurt

By Marc Jones

LONDON (Reuters) – European stocks have had their best week in over a year as fading faith in the Trump trade has pushed investors across the Atlantic to where the euro and the region’s economy may be heading higher.

Figures from Bank of America Merrill Lynch (BAML), which track investment flows up until Wednesday, showed $1.5 billion being pumped into European equities and a second straight week of outflows ($0.8 billion) for U.S. shares.

BAML’s analysts said it was a case of “Europe in vogue” amid a growing belief that the right-wing Marine Le Pen will not win the French election, but also after U.S. President Donald Trump’s image took a hit as saw his first major policy change attempt scuppered.

“The AHCA (Obamacare) vote led to outflows this week from aggressive fiscal stimulus trades (infrastructure, materials, US value),” BAML said.

“It may also have encouraged inflows to bonds (ex. high yield bonds) and further acceleration of flows to non-U.S. equities.”

Listing the start of the year’s main winners and losers; global equities rose 7 percent outperforming the 2 percent gain in bonds. The biggest “pain trade” meanwhile was the dollar which fell 2 percent and commodities which slumped 5 percent.

Bonds, which are seen as a low risk asset to hold, have seen inflows in 13 of the last 14 weeks, though it includes nine straight weeks on inflows in riskier emerging market debt funds and 16 uninterrupted for inflation-linked TIPS funds.

As the safer end again, precious metals have gained for seven out of the last nine weeks.

Broadly spirits are still high though it seems. A 1-10 “Bull & Bear indicator” BAML compiles remains at 7.0, just shy of a contrarian “sell signal”. “We believe investor bullishness is light and reluctant,” the bank said.

(Reporting by Marc Jones; Editing by Alison Williams)