Economía

The reflation rally continues. Despite our bearish outlook for the year, we think the risks of the current rally lie to the upside given China's redoubling of stimulus at the expense of reform. Populist troubles are picking up in Europe, but we maintain our positive structural view and note that the migration crisis is slackening. Rather, the greatest risks of populism continue to flourish in the Anglo-Saxon world with Brexit and Trump.

Preliminary results from the Philippine elections suggest that policy uncertainty and discontinuity will challenge the reform trajectory of a country with one of the best macroeconomic backdrops in the emerging market universe.

The U.S. dollar has fallen to almost 5% below its 2016 peak. In this <i>Special Report</i> we explore the impact of a weaker dollar on key U.S. fixed income markets.

We continue to view the rally in equities and high-yield corporate bonds since February as a high-risk affair.

U.S. dollar softness has failed to lift equities of late, a tentative warning that correlations are changing as the U.S. economy cools.

The trading action of gold is currently sending a bearish message on the dollar as the price of the precious metal has broken above critical resistance. Though the causation between the dollar and gold usually runs from the former to the latter, gold also has a tendency to sniff out broad-based moves in the greenback. We remain broadly short USD in our portfolio.

Historically, carry trades have generated very large profits with limited volatility. Since 2008, this has not be the case. Going forward, carry trades should continue to underwhelm.

China's reflation policies have succeeded in reviving iron ore and steel prices, which are up 45.6% and 52.6% from their January lows, along with the profitability of domestic steelmakers.

It is widely perceived that China suffers from a massive capital misallocation problem. Our indicators defy this conventional wisdom.

Colombia's structural growth outlook is superior to many other developing economies. In the near-term, however, Colombia's economy is set to weaken materially. Upgrade Colombian equities and sovereign credit to neutral versus EM benchmarks. Continue betting on further yield curve flattening/inversion and buy 10-year domestic bonds on weakness. Go long Colombian bank stocks / short Peruvian banks, and stay short the peso.