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'Trump trades' on ice ahead of U.S. inauguration: BAML

Reuters

LONDON (Reuters) - Precious metal funds saw their biggest inflow in five months and bond funds notched a fourth consecutive gain over the last week, as investors continued to hedge "Trump trades" put on late last year that bet on stronger growth and rising inflation.

Figures from Bank of America Merrill Lynch (BAML), which track flows through to Wednesday, showed the first shift into precious metals in 10 weeks, while financials had their first outflow in four months and government bonds snapped a five week losing streak.

Risk appetite has not completely evaporated it appears, however. Both equities and emerging markets funds saw modest gains and inflation linked-plays remained in favor too.

BAML analysts recommended sticking with what they named 'Icarus trades' that take bets on a further rise for assets before the wings melt and the ground rushes up.

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"Positioning, Profits & Policy make us stick with our Icarus Trade view that any Jan/Feb wobble to be followed by one last 10 percent melt-up in stocks & commodities in H1 before visible investor 'hubris' on macro and markets signals the 'Big Top'."

They said the firms 'Global Flow Trading Rule', which had flirted with a sell signal mid-December had "pulled back from the abyss" with inflows into equities and high yield funds currently below the four week trigger of 1 percent of assets under management.

A breakdown of the data continued to paint a mixed picture however. Japan secured the equity top spot for a second straight week with a $2.5 billion inflow after adding $3.1 billion the previous week. U.S. stocks were also the counterweight again with a $2.5 billion outflow.

A $1 billion inflow into government bonds was the first in six weeks and the largest in six months.

(Reporting by Marc Jones; Editing by Mark Potter)