Developed Countries

Housing activity should accelerate in the back half of the year given the drop in Treasury yields. Buy home improvement retailers and add to long homebuilding positions.

A benchmark overall duration stance is still warranted, as central banks will maintain exceptionally accommodative monetary policies to offset potential Brexit-related shocks to confidence.

Some near-term upside in Treasury yields is very likely as flight to safety flows begin to unwind. However, given that global growth divergences remain in place, we will continue to look for an opportunity to increase duration on any meaningful back-up in yields.

Special Report

Dear Client, After being ardent bond bulls for many years, it is time to shift gears. As I write these words, the U.S. 10-year Treasury yield has hit an all-time low of 1.37%, the 10-year bund yield is at -0.18%, and the 10-year Swiss yield is at -0.61%. While we do not expect yields to soar anytime soon, the long-term risk for yields is now more to the upside than the downside. This suggests that investors should sell bonds on any rallies. We are maintaining a neutral stance towards global equities for now, but will be looking to overweight stocks later this year if (as we expect) the post-Brexit shock running through policy circles leads to a further easing in fiscal and monetary policy. With this in mind, we are opening a new structural trade recommendation: Short an equally-weighted portfolio of Japanese, German, and Swiss 10-year bonds. We regard these three negative-yielding markets as among the most overpriced in the world. Details will follow later this week in our Q3 Strategy Outlook. Best regards, Peter Berezin, Managing Editor

The model continues to keep its largest overweight in U.S. equities. Directionally, Japan's underweight is slightly reduced for a second month (albeit by only 13 basis points).

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.

The Brexit vote will either usher in the complete dissolution of the euro area, or it will prove to be a blessing in disguise. Our bet is the latter, but the next few months are still likely to see heightened political uncertainty and elevated financial volatility, warranting a cautious stance towards risk assets. Investors have become too complacent about the prospect of Fed hikes over the coming years. Even a slight upward move in rate expectations could cause the dollar to surge. Underweight U.S. stocks in currency-hedged terms.

Special Report

The only certainty regarding the next steps in the Brexit Saga is uncertainty. In the attached report, BCA's Geopolitical Strategy presents the BREXIT Decision Tree and reviews the possible next steps. We also collate all of the BCA investment views and strategies - tactical and strategic - that relate to the ongoing saga.

Global uncertainty is elevated, but markets know this. Brexit could prove extremely negative for the global economy if it prompts a questioning of the EU's integrity. The cyclical outlook for the pound remains poor, but a short-term opportunity to buy GBP/JPY has emerged. We still like the SEK and commodity currencies. The SNB will continue to intervene, but the peg is increasingly dangerous.

Financial stocks around the world have plunged, with U.S. relative performance on the cusp of setting new cyclical relative performance lows. While the sector is well capitalized and has low balance sheet risk, our negative stance is predicated on income statement concerns. Brexit represents another deflationary shock in a world struggling to generate trend growth. To the extent that faltering economic confidence further undermines business activity and sends capital to the perceived safety of the U.S. dollar, it amounts to a tightening in global financial conditions. Under these conditions, downward pressure on the interest rate structure will persist (second panel), robbing the financial sector of a much needed source of income. Thus, while the financial sector appears 'cheap', it is still too soon to consider bottom fishing, at least until deflationary pressures subside. We reiterate our below-benchmark position. The ticker symbols for the stocks in this index are: BLBG: S5FINL.