EUR/USD, DXY flows: BofA survey contrary indicator highlights risks
BofA survey suggested the market went all in in May
Contrary indicator suggesting s/t over-bullish, under-risked, and underweight dollars
Playing to the wary mood, the latest BofA fund manager survey presents a potential contrary indicator bearish signal, as the global equity allocation saw its largest single-month jump on record, surging to a net 50% overweight from just 13% in April. This marks the highest exposure level seen since January 2022.
Cash allocation dropped below 4% helping the Bull & Bear Indicator surge to 7.8, all but hitting the over-stretched contrary sell indicator mark of 8.
On top of that, the bandwagon on the ‘rotation rotation’ also seems very marked with such a rapid reversal back out of Europe into US (former slumped to now 4% underweight, latter jumped to 20% overweight.
73% of surveyed fund managers also now explicitly name the semiconductor trade as the most crowded in the market.
It’s also notable to see that hard landings are almost not seen at all (just 4%), with most expecting 'no landing' (39%) - all despite the majority seeing risks skewed to the US long end going to 6% vs going to 4%.
All in all, the survey suggests the market is priced for perfection even amid the Iran situation, swinging heavily to 'all in' on equities and on no downside risk, while complacent on yield impact.
This set the backdrop to the current risk skew, in terms of corrections from s/t overstretched markets and the equally inconvenient dollar bounce.
Indeed, the survey also suggests the market remained skewed to dollar hedging along with its US overweight and had a high weighting towards expecting the ‘Warsh trade’ to lead to a lower dollar - another theme under challenge from the current pevailing challenges.