Global
For the month of June, the model performed in line with both global equities and the S&P 500. For the month of July, the model is increasing its risk exposure.
This <i>Special Report</i> looks at global equity valuations. The conclusion is that although most equity markets are far from cheap, some compelling investment opportunities do exist.
Post-Brexit uncertainty will continue for some time. But we were already cautiously positioned, and would not go any more defensive.
The Brexit vote has ended the reflation trade, but does not represent a "Lehman moment" either. Stick close to benchmark in terms of broad asset allocation, and watch European bank CDS for signs that another financial crisis is brewing.
Rising policy uncertainty is negative for global equity multiples.
Equity and Treasury market positioning support the notion of a bounce in risk assets, possibly egged on by dollar weakness.
Among the myriad of troubling signs for the global economy, some developments on the inventory and deflationary fronts could point to a brighter future. While still not our base case, those factors need to be monitored. With Brexit over and done with, we are reshuffling our GBP portfolio. Remain bullish EUR/USD. Go short CAD/NOK.
Global oil demand will continue to surprise to the upside over the balance of the year - growing at a rate of 1.6 MMb/d - following an unexpected surge over the first five months of 2016.
We prefer to fade the recent fall in yields by moving to neutral on U.K. Gilts and underweight Australia, while maintaining a benchmark overall stance on portfolio duration.
The "reflation trade" is breaking down. Brexit risk is partly at fault; the bigger issue is the lack of a global "spender of last resort." Globally, savings must equal investment. The problem is that desired savings are rising and desired investment is falling. Policy is increasingly reflecting this reality: Fiscal austerity is yielding to stimulus, the obsession with fighting inflation replaced with talk of helicopter money/other radical solutions. Bond yields are likely to stay depressed for the next two years, but could then begin to rise much more than current market expectations. We are closing our short EUR/JPY trade.