It
was "fascinating so many deem inflation as transitory when
stimulus, economic growth, asset/commodity/housing inflations
(are) deemed permanent", the investment bank's top strategist
Michael Hartnett said in a note on Friday.
Hartnett thinks inflation will remain in the 2%-4% range over
the next 2-4 years. U.S. inflation has averaged 3% in the past
100 years, 2% in the 2010s, and 1% in 2020, but it has been
annualising at 8% so far in 2021, Bofa said in the note.
Global stocks were holding near record highs hours ahead of the
reading of May core personal consumption expenditures index, an
inflation gauge tracked closely by the Fed. The gauge is
estimated to rise 3.4% year-on-year.
U.S. Federal Reserve Chairman Jerome Powell vowed on Tuesday not
to raise interest rates too quickly based only on the fear of
coming inflation. The comments were seen as a move to soothe
investor nerves after a hawkish monetary policy meeting last
week suggested officials believed interest rates would rise as
soon as 2023, perhaps a year earlier than anticipated.
BofA clients were still heavily invested in equities, with cash
allocations well below long-term averages at 11.2%.
In the week to Wednesday, investors pumped $7 billion into
equities and $9.9 billion into bond funds, while pulling $53.5
billion from cash funds, BofA calculated, using EPFR data.
Within equities, emerging market funds saw outflows of $1.6
billion - the largest since September 2020.
As the first half of 2021 is drawing to close, Hartnett said
higher inflation, hawkish central banks and weaker growth are
the key themes to watch out for in the second half.
Graphic: BofA private client cash holdings -
https://fingfx.thomsonreuters.com/
gfx/buzz/gjnvwqedxvw/Pasted%20image%201624612993878.png
(Reporting by Thyagaraju Adinarayan, editing by Karin Strohecker
and Kim Coghill)
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