BofAML Expects Euro, Dollar Gain This Summer, Sees Sterlin g Dip

BofAML expect markets to start pricing diverging monetary policies, supporting EUR and USD against JPY and CHF, Athanasios Vamvakidis, head of G-10 currency strategy in London, writes in a note to clients.

* Says the market is pricing a very slow Fed while the
consensus is too pessimistic on the chances of U.S. tax
reform
* The market is pricing an almost zero chance and the
risks are for a positive surprise
* ECB will announce QE tapering this fall; unless they are willing to increase the issue limit or relax the capital
* The market is not listening to the BOJ; they could drop the annual purchasing target at some point, but only when they are confident that markets will not overreact
* The consensus has become too positive on Brexit; market has already priced a positive scenario and could get disappointed in the months ahead, when the negotiations actually start
* GBP is likely to end the year lower

The bank also says  U.S. equity funds see net outflows of $9.3b in week to May 3, the second-largest outflows in 6 weeks

* European equity funds see net inflows of $0.3b, marking a 6th straight week of inflows; emerging markets funds see $2.4b inflows, 7 straight weeks of inflows and largest in 4
weeks

* In fixed income: bonds see inflows of $9.7b overall, with inflows in 18 of the last 19 weeks; IG bond funds see inflows of $5.6b; HY bond funds see inflows of $0.2b; EM debt funds see inflows of $2.5b

Source: Bloomberg

Junior Trader Stefan Panteleev

Read more:

• USA ADP Nonfarm Employment Change: 202K vs 160K
• Iran response was ‘too fast and too furious’ on the U.S. airstrike
• USA – ISM Non-manufacturing PMI: 55.0 vs 54.5
• Top 5 things to watch on Tuesday
• Noise: How to Overcome the High, Hidden Cost of Inconsistent Decision Making