Global money market funds see big demand as rate cut euphoria fades

Jan 5 – Investors moved hefty amounts into global money market funds in the seven days leading to Jan. 3 as caution set in ahead of key US employment reports which may influence expectations of Federal Reserve rate cuts.

According to LSEG data, investors poured a massive USD 111.44 billion into global money funds on a net basis during the week, the biggest weekly amount since March 22, 2023.

US unemployment data on Thursday indicated a still resilient US labor market, tempering prospects of deep rate cuts by the Federal Reserve this year. The release of monthly US payrolls figures later in the day would further influence expectations about the timing and pace of rate cuts.

Both US and European money market funds witnessed aggressive buying as they drew USD 56.92 billion and USD 56.05 billion, respectively, in inflows. Asian money market funds, however, witnessed USD 3.86 billion worth of outflows.

Conversely, global equity funds recorded about USD 230 million worth of outflows after having received USD 15.95 billion in inflows in the previous week.

The industrials sector funds led outflows, with a net USD 292 million leaving, followed by USD 247 million and USD 242 million worth of respective net selling in metals & mining, and healthcare.

In the bond market, global bond funds received USD 9.72 billion, the most significant weekly inflow since Dec. 6. Corporate bond funds continued to attract interest with USD 1.49 billion in inflows, a second consecutive week of net buying.

Notably, US short-term government bond funds attracted USD 3.2 billion, marking their first weekly inflow in nine weeks. However, global high-yield bond funds experienced about USD 108 million in net selling, their first weekly outflow in three weeks.

Among commodities, investors pulled a net USD 805 million out of precious metal fund, breaking their four-week-long buying string. Energy funds also had about USD 20 million worth of outflows.

Data encompassing 29,076 funds in the emerging markets showed that equity and bond funds both attracted inflows for a second successive week, totalling USD 1.05 billion and USD 1.59 billion, respectively.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Tomasz Janowski)