Well, BofAML’s latest FX and rates survey is out and there are some interesting takeaways.
The latest iteration was conducted from the 9th through the 14th of this month with 66 fund managers with AUM of nearly $350 billion participating. The topics were “tariffs, transition and tightening.”
Perhaps the most amusing bit from the survey is the response the bank got when they asked about the likely impact of a possible escalation in the burgeoning global trade war kicked off earlier this month when Trump announced steel and aluminum tariffs.
As BofAML notes, “investors are unsure about how to position for tariff threats in rates and instead view equities and the USD as the more obvious plays.”
Right. And remember, there’s more than a little ambiguity about what the tariff threat means for the dollar because while the models say one thing, real-world experience (i.e. the fallout) tells a different story. In light of that, folks are overwhelmingly predisposed to just short stocks:
When asked what will reprice rates higher in the US, respondents chose the front-end (note the change from the responses in February):
BofAML also notes that a plurality of respondents chose “monetary policy divergence” as the main driver of the dollar in 2018, but that would appear to run counter to positioning in USD (which is short). Obviously, the “twin deficits” response is dollar bearish:
Also notable are the responses to a question about tightening funding conditions stateside:
Finally, when it comes to how the ECB is likely to approach forward guidance after APP officially comes to an end, 40% of respondents believe they’ll cushion the blow by explicitly reiterating that rate hikes will be contingent upon developments on the inflation front and also by continuing to insist they’ll remain low forever (I mean, not “forever”, but you get the idea):