Institutional Insights: BofA The Flow Show

Below is an overivew of capital flows as analysed by Michale Hartnett of Bank of America

The Prime of Strife

Scores on the Doors: crypto 17.2%, gold 16.9%, stocks 8.9%, oil 6.3%, HY bonds 4.7%, commodities 3.3%, cash 3.2%, IG bonds 1.9%, US$ 1.9%, govt bonds -0.8% YTD.

Zeitgeist: "The Bank will continue to raise the policy interest rate going forward", BoJ July 31st; "The Bank will not raise its policy rates when markets unstable”, BoJ Aug 7th; painfully (biggest FX carry-trade loss since Mar'20 Wall St has now stopped BoJ hiking; Wall St's Aug/Sept goal now appears to be bossing the Fed into big rate cuts.

The Biggest Picture: lowest interest rate small businesses can borrow at is prime, and in real terms US prime rate is 6.5%, highest this century; higher-for-longer real rates slowly and decisively hurting US consumer & labor market; global rate cuts no longer question of "if" or "when", simply question of "will cuts work"; we say big cuts needed to work…note China 30-year bond yield at new all-time low.

The Price is Right: technical levels that would flip Wall St narrative from soft to hard landing have not been broken…4% on 30-year Treasury, 400bps on HY CDX, 5050 on S&P500…good news; important now for stock leaders SOX (4600) & big tech XLK (200) to hold 200dma levels…if levels break, traders then target 2021 highs (i.e. 10% lower).