Economy

The messages from the deteriorating fundamental backdrop (tight monetary policy, slowing global growth) and improved credit valuation (elevated 12-month breakeven spreads) are giving conflicting signals on corporate bond strategy. We are putting more weight on the fundamentals and are staying with an overall underweight stance on global investment grade corporates, with a slight bias towards Europe given more attractive spread valuations. At the same time, we see selective opportunities in sectors where risk-adjusted spreads are wide as signaled by our individual country sector valuation models, like US Energy and euro area Financials.

The conditions for a sustainable rally in Chinese stocks have not been met. In this report we discuss the four signposts which we will closely monitor to gauge when it will be warranted to upgrade our stance on Chinese equities both in absolute terms and relative to the global stock benchmark.

Global oil supply will slightly exceed demand in the next six months, resulting in a small surplus. Brent oil prices will trade in a range with a floor at $80 per barrel, barring any geopolitical turmoil in the Middle East and/or escalation in the West-Russia conflict.