FICC

Special Report

Using long-term real rates, Uncovered Interest Rate Parity still works for exchange rate determination. Currencies are also affected by the global risk appetite and commodity prices. Intermediate-term fundamentals for EUR/USD are pointing up, but the timing is not optimal to buy it yet. However, the long-term outlook for the euro remains poor. Currently, USD/JPY has room to rally in the short term. Long-term factors will also continue to weigh on the yen.

Refiners will reduce run rates over the next month or so to clear unintended inventory accumulation, but it's not like they've never had to deal with this situation.

Special Report

Our newly-developed European bottom-up Corporate Health Monitor is signaling that European corporate balance sheets, in aggregate, are steadily improving.

Developed Market bond yields are too low relative to improving global growth and the strong recovery in risk assets post-Brexit. Reduce portfolio duration to below-benchmark.

Over the past 12 months, the yen surged, powered by global deflationary fears. Japanese monetary conditions massively tightened, causing additional yen strength, creating a vicious circle. Policymakers will respond, but markets are likely to be disappointed. Nonetheless, global factors could temporarily move against the yen. Buy NOK/JPY and AUD/JPY. The BoE will move next month. The BoC will stand pat for the foreseeable future.

Commodity speculation provides liquidity to hedgers, allows price discovery, and offers access to an asset class that typically produces returns that are not correlated with stock or bond returns.

A spike in economic uncertainty explains the recent move lower in Treasury yields. Given the resilience of global growth, we expect yields to rise as uncertainty ebbs in the coming months.

Special Report

Today, on a tactical basis, we are moving our allocation on EM hard currency bonds to neutral from underweight. In this Special Report, we elaborate on the reasons leading to this decision.

Brexit is putting our bearish short-term dollar view in question as global policy uncertainty has surged. Yet, investors are displaying elevated signs of risk aversion but the global economy still looks fine. This dissonance is likely to end with investors increasing risk taking, a bearish development for the counter-cyclical dollar. Favor commodity currencies over European ones.

Our strategic and tactical trades were up an average 24.6% in 2016Q2, led by strategic energy recommendations. Going forward, we continue to favor energy exposure over base and precious metals, ags and softs.