Fund managers predict three or more US rate hikes in next 12 months

More than half the global investors polled by Bank of America Merrill Lynch in its latest Fund Manager Survey expect the Federal Reserve to raise US interest rates three times or more in the coming 12 months.

In total, 58% told the bank’s researchers in December that was what they expected, while 53% described “long US dollar” as the most crowded trade in the markets, up from 32% last month.

“The strong dollar view is writ large across all asset, regional and sector allocations. It will take a very dovish Fed and weak US earnings to reverse the strong dollar view in 2016,” writes Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Ahead of Wednesday’s decision by the rate-setting Federal Open Market Committee, which is expected to raise the Federal funds rate for the first time in almost a decade by a quarter of a percentage point, investors are defensively positioned even though the Fed is also expected to accompany the increase with generally dovish comments.

Editor’s blog: How to trade this week’s US rate rise

Risk taking fell, reports BAML, and cash holdings rose to 5.2% of portfolios from 4.9% in November.

Elsewhere, a net 43% of regional fund managers said they expect China’s economy to weaken in 2016, up from a net 4% last month, and the weighted average economic growth projections for China in 2018 fell to 5.5% from November’s 5.9%.

A net 29% of asset allocators were underweight commodities, up from a net 23% in November, and while investors increased their underweight positions in US equities, Europe and Japan were the most favoured regions for overweight positions in 2016.

Investors also emphasised a focus on quality, with a net 65% saying that high-quality earnings stocks will outperform low-quality earnings stocks next year.

“European equities remain in favor despite disappointment over the ECB decision,” writes James Barty, head of European equity strategy at BAML. On December 3, the European Central Bank dashed many investors’ hopes with a less aggressive than expected package of measure to boost the eurozone economy.

Republished from news.markets: http://news.markets/bonds/fund-managers-predict-three-us-rate-hikes-next-12-months-6822/