LONDON (Reuters) - Bank of America Merrill Lynch (NYSE:BAC) said on Friday its market sentiment indicator has fallen to a level so bearish it has triggered a "contrarian" buy signal for assets considered more risky, such as equities, for the first time since January.
The bank's "Bull & Bear" gauge of market sentiment has dropped to 1.3, down from 2.4 a week ago, triggering a "buy signal" for risk assets, the bank's strategists said.
The bank said it is more bullish this year on stocks and commodities after huge outflows of investor cash from those markets and also because central banks were loosening monetary policy in response.
"Trade war thus far caused lower rates, not recession," the strategists, led by Michael Hartnett, said in the report.
The call comes as investors continue to sell equities and buy bonds and gold, which are considered safe during times of economic and political strife, amid worries over trade tensions and a global economic slowdown.
Some $12.4 billion of cash flowed into bond funds and $1.9 billion into gold in the week to Wednesday, the bank said, citing EPFR data. Another $7.6 billion left equities, taking the year-to-date outflow total to $204 billion, it said.
A record $160 billion of inflows into bond funds over the past three months reveals deep global recession fears, the strategists said. They said Europe looks increasingly like Japan, which is still struggling with low inflation after the slump caused by a burst asset bubble in the early 1990s.
Europe's major stocks indices reached one-months highs on Friday, amid hopes that trade tensions between Washington and Beijing were easing, although the latest batch of punitive import tariffs were due to hit Chinese goods on Sunday.
(Graphic: BAML FLOW SHOW link: https://fingfx.thomsonreuters.com/gfx/mkt/12/5462/5412/baml.png)