Ukraine war sees European equities suffer record outflows – BOFA

© Reuters. FILE PHOTO: A Bank of America logo is pictured in New York City, New York, U.S., January 30, 2019. REUTERS/Carlo Allegri

LONDON (Reuters) -European equities as well as financial stocks funds suffered their biggest outflows on record as investors piled into cash in the week to Wednesday as the war in Ukraine roiled global markets, BofA said in its weekly flow note on Friday.

Investment banks, including BNP Paribas (PA:BNPP), have slashed their targeted returns for European equities while financial stocks have bled heavily as investors have been forced to unwind bets of large interest rate increases this year due to the war.

European equity funds haemorrhaged $6.7 billion while financial funds saw outflows of $3.5 billion, said BofA in its report based on EPFR data.

Meanwhile cash funds enjoyed the largest inflow in 9 weeks at $46.3 billion and $1.9 billion was funnelled to gold.

“Russia/Ukraine means bigger ‘Inflation shock’, smaller ‘Rates shock’, bigger ‘Recession shock’,” Michael Hartnett, chief investment strategist at BofA, said in a note to clients.

“Fed/ECB hopelessly trapped between deflation on Wall St & inflation on Main St (Euro producer prices up staggering 30.6% YoY pre-invasion); oil price spike, military-sanctions escalation cycle, financial market accidents threaten global recession,” he said, referring to the U.S. and euro zone central banks.

The conflict has provided impetus to commodity prices, with BoFA strategists noting that a commodity index has posted its strongest annual start since 1915.

Market breadth has worsened across the board, with 42% of global equity indices trading below the 50-day and 200-day moing averages in U.S. dollar terms.