· Equities posted a relatively strong month across the board with the US equities doing particularly well when compared to G3 economies. Along with a steady performance in US bonds, foreign investors are likely to have seen an increase in value of their US assets.
· The net signal to sell USD is mainly driven by foreign investors’ needs to hedge this increased value of US asset holdings.
· Our assumptions on hedge ratios and asset allocation suggest these flows will likely out-pace the USD buying needs of US investors with foreign assets, despite the strong performance of equities in Norway, New Zealand and Canada.
· There are several data points set to be released on month-end. Canadian GDP, US Chicago PMI and Consumer Confidence data will probably attract the most attention ahead of the 4pm London time fix next Tuesday.
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· The Month End Asset Rebalancing model signals an outflow from equities into bonds this month. The signal is relatively weak at -0.2/+0.1 historic standard deviations respectively.
· Japan and US are the only equity markets to see inflows this month while EM equities see outflows. US, Euro area and UK bonds receive inflow signals while Canada, Japan, CEE and LatAm are likely to see outflows.
· The Asset Rebalancing signal is mildly stronger than the hedge rebalancing one and points at USD selling with small buying of EUR and JPY at month end.