Global Navigator | Interesting times ahead as central banks grapple with inflation

With the latest week split by a US market holiday, oil prices regaining the $100 a barrel mark, and a slew of central bank policy meetings and corporate earnings reports on the immediate horizon, investors trod lightly during the first full week of September. Flows to the major EPFR-tracked fund groups as a percentage of their AUM ranged from 0.02% for Developed Markets Equity Funds to 0.52% for Emerging Markets Bond Funds.

The European Central Bank (ECB) kicked off the slate of central bank gatherings with another 0.25% interest rate hike. But, at 2.5%, the ECB’s key rate is still 80 basis points lower than the latest Eurozone’s inflation number, and investors remain concerned that they and other central banks are responding to rising prices rather than heading them off. Flows into Inflation Protected Bond Funds jumped to a 16-week high as they extended an inflow streak that started in early February, Cryptocurrency Funds extended their longest run of inflows in over 10 months and Physical Gold Funds took in fresh money for the 10th week running.

One risk that investors are not responding to is war. Despite the latest conflict in the Middle East running hotter and Russia’s invasion of Ukraine in its fifth year, there has been a noticeable drop off in flows to Aerospace & Defense Funds in recent months.