Monetary

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.

If the damage of the Brexit is contained in the U.K., the direct economic impact on China should be marginal. China's relatively closed financial system makes it less exposed to global shocks than most other countries. It is too soon to expect a policy response from the Chinese authorities just yet, but Brexit has pushed China's "balancing act" needle further toward stimulus.

At the margin Brexit only serves to reinforce the divergences in global growth that were already in place. Maintain duration at benchmark and look to increase duration exposure on any meaningful back-up in Treasury yields. Corporate spreads are still not attractive, but any Brexit related sell-off could present an opportunity to initiate a tactical overweight.

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.

The Chinese government is engaging in a difficult balancing act between the imperative of maintaining growth momentum and structural reforms. Policymakers have eased off the gas pedal, but the impact of previous stimulative measures should continue to filter through the economy. Investors should also curb their enthusiasm in assessing China's demand-side countercyclical initiatives.

The secular stagnation narrative is gaining traction amongst the FOMC. Expect further downward revisions to longer run FOMC interest rates forecasts, toward levels already discounted in the Treasury curve.

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 Fed has reason to delay the next rate hike until at least September, even if volatility subsides after the June 23 Brexit vote.