European fund managers have turned more optimistic on global growth despite mounting signs of weakness in the U.S. labor market, according to Bank of America’s latest survey (FMS).
The poll shows that weaker jobs data has not shaken sentiment. While the U.S. labor market has jumped to the top spot as the biggest downside risk to global growth, the share of managers expecting U.S. growth to slow has fallen to its lowest level since February.
At the same time, the share expecting reacceleration has risen to the highest since April last year. Respondents cited fading concerns over Washington’s policy mix and rising expectations of monetary easing as reasons for the shift.
Overall, global slowdown fears have receded, with the net share of respondents expecting weaker growth down to the lowest since February.
“Clearer signs of weakness in the U.S. jobs data has done little to dent FMS respondents’ growth expectations,” BofA said in a recent report. A soft but stagflationary landing remains the base case, with recession expectations in line with historical averages.
Views on Europe have changed. Optimism about EU exceptionalism has faded, with the region’s equity overweight slipping further and the gap with U.S. equities narrowing.
Still, conviction in EU equity upside in absolute terms has strengthened, supported by earnings expectations. The share of respondents expecting mild downside has fallen, and no respondent sees losses of more than 5% for the fourth month in a row.
Moreover, trade worries have eased, BofA notes, with more than half of respondents now saying tariff shocks are fairly priced. The risk of a trade war triggering global recession has slipped to fourth place among market tail risks, behind a second inflation wave and concerns over Federal Reserve independence.
Beneath the improving outlook, fund managers are increasingly uneasy about their positioning. The survey found that 19% of respondents are worried about lacking defensive exposure, compared with just 4% who fear being underweight cyclicals.
Financials remain the most favored super-sector for the tenth straight month, though healthcare has overtaken financials as the top pick among individual sectors.
By country, Germany remains the most preferred market, while France has become the least popular amid political uncertainty.
