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25. Forex Flash: Appetite towards fund-flows salient post 2007-crisis – Goldman Sachs

FXstreet.com (Barcelona) - Retail appetite for fixed income assets—and retail aversion towards equity—has been one of the most salient post-crisis developments. The mutual fund complex is probably the area where the retail preference for fixed income manifests itself most visibly. According to the Economics Research Team at Goldman Sachs, “The ownership shares of mutual funds and exchange-traded funds (ETFs) in the corporate and municipal bond markets and more specifically, the contrast between fixed income and equity markets is striking.”

The ownership share of mutual funds in the investment grade corporate bond market has almost doubled since 2008, going from 9% to 18% as of the end of last year, whereas the ownership share of households and mutual funds in the equity market has remained roughly flat.

Recent patterns have raised concerns among fixed income investors, and increasingly among regulators, about the risk of an abrupt reversal of fund flows and the damage this could do to the performance of the asset class. In a recent speech, Fed Governor Jeremy Stein echoed these concerns, pointing specifically to the growth of corporate bond mutual funds: “If investors in these vehicles seek to withdraw at the first sign of trouble, then this demandable equity will have the same fire-sale-generating properties as short-term debt.” The flipside of these concerns is the enthusiasm among equity investors about the prospect of increasing inflows to equity markets. “Many equity market participants view a ‘Great Rotation’ from fixed income into equity as a potential tailwind to the performance of the asset class.” the team notes.

Forex Flash: EUR/USD downside primed to accelerate – Westpac

Regionwide advance May PMI (Thursday) the key release for the week. Already released May ZEW survey for Germany and the Eurozone suggest another month of sub- 50 readings for much of the region. The May German IFO survey (likely soft) is due Friday. Bevy of ECB speakers on tap including Draghi (Thursday) - keep an eye out any comments around a credit/lending scheme.
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Forex: EUR/JPY – coming off to 131.80 support

The pair recovered to 132.20 pre US data but has since declined back below the figure to find support at 131.80.
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