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Survey: euro hot, dollar not
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October 12, 1999: 5:28 p.m. ET
Merrill survey finds money managers bullish on Europe, cold on U.S.
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NEW YORK (CNNfn) - Global fund managers are betting increasingly on Europe's recovery while moving away from U.S. equities, which they perceive as risky, according to a Merrill Lynch survey released Tuesday.
A record 64 percent of managers choose the euro as their favorite currency, according to the survey of 267 financial institutions worldwide conducted by Gallup for Merrill between Oct. 1 and Oct. 6. As a result, buyers of European stocks outnumber sellers by 32 percent, the highest margin since May 1995.
This bullishness over Europe comes on increased evidence of the region's economic recovery. The optimism is reflected in the currency markets, where the euro over the last several weeks has gained against the dollar. On Tuesday, It cost $1.0764 to buy one euro from $1.0636 Monday, a 1.20 percent rise in the euro's value.
But in the Merrill survey, optimism over Europe has come amid negative sentiment on the United States economy. Managers see a weakening dollar and rising commodity prices leading to a pick-up in inflation. Fifty-seven percent of managers expect inflation to rise over the coming year.
As a result, sixty-eight percent of managers expect the central bank's main lending rate to be higher in a year's time. Still, they see the main, federal funds, rate at an average of 5.40 percent, not much above the current 5.25 percent.
This fear of inflation and optimism over European markets may be driving buyers out of U.S. equities.
"Fear of inflation has caused (U.S.) fund managers to raise their cash positions to overweight from underweight," Merrill said. "It has also driven a dramatic move out of U.S. equities, the perceived risk area."
U.S. stocks fell sharply Tuesday.
The inflation fears sparked by a rise in commodity prices and evidence of a global recovery clearly have hurt the U.S. Treasury market, where the yield on the 30-year bond is at an eight-week high.
In an e-mail to clients Tuesday, Tony Crescenzi, bond strategist at Miller Tabak & Co. said inflation concerns are warranted.
"The fear seem to be emanating from the now-obvious rebound in global industrial production which, in turn, is lifting commodity prices," he wrote. "Moreover, concerns persist over the ever-elusive slowdown scenario as the economy continues to perform well in spite of tighter financial conditions." 
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