Where is the global economy going? With the Trump trade and global reflation, the outlook has improved a lot in recent months, according to some of the world's top money managers at least.

The latest Global Fund Manager survey from Bank of America Merrill Lynch shows optimism remains firm despite a slight pullback. Here's a few highlights from the report.


Time for a pause?

Investor sentiment is exhibiting a “bullish holding pattern” but the survey suggests there will be a March/April risk rally “pause”.

Policy is key now with the Trump rally having run a long way markets are positioned for some concrete action. "Policy the key catalyst for 'Icarus trade' to fly higher in coming months," says the BoAML team.

The biggest risk to all this is higher rates. A third (35%) of the fund managers polled say tightening poses the biggest risk to sustaining the momentum in equities. A fifth (21%) think declining earnings. For now there are no signs of coordinated monetary policy tightening.

Goldilocks or Boom

The optimism around the global economy is striking. At 34%, secular stagnation expectations fell to five-and-a-half year lows, while 23% said we are heading for Goldilocks in the next 12 months. Expectations for faster global growth are high at a net 58%, while the outlook for the Chinese economy is particularly strong. Stagflation odds increased to 22%, while a boom is seen as the least likely (20%).

Boom - above trend growth and inflation
Goldilocks - above trend growth and below trend inflation
Stagflation - below trend growth and above trend inflation
Secular stagnation - below trend growth and inflation

Most crowded trades 

1 - Long US dollar (39%)
2 - Long banks (16%)
3 - Short government bonds (15%)

Biggest ‘tail risks’

1 - European elections raising disintegration risk (33%)
2 - Trade war (20%)
3 - Crash in global bond markets (18%)

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