Energy

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.

EM/China oil demand is not as strong as some reputable energy sources have indicated. As and when the oil market shifts its attention from supply cutbacks to subdued EM/China oil demand, oil prices will relapse. Renewed drop in commodities prices and poor growth in EM will weigh on EM risk assets going forward.

Increasing uncertainty over the Brexit vote will keep the Fed from raising its overnight policy rate at this week's FOMC meeting, but it may not keep the USD from rallying in the event of a decisive win for Brexit advocates on June 23.

China's 4.7 trillion RMB (~ $720 billion) fiscal stimulus program will be more bullish for base metals, particularly copper, than we initially surmised.

What is liquidity? How is it created and destroyed? And when does it trigger turning-points in financial markets?

While the Fed's recent forward guidance leading markets to increase the odds of a policy-rate hike earlier than previously expected will restrain the recovery in crude oil prices, fundamentals will dominate price formation now that markets have rebalanced.

There is a risk that global bond yields move higher in the near term, although we prefer to position for that move <i>via</i> cross-market spread, yield curve and inflation trades.

Markets will remain stuck in a trading range, driven by two policy feedback loops: the Fed's and China's.

Both hawks and doves at the Federal Reserve, including Chair Yellen, have stepped up efforts to condition financial markets for a rate hike as early as June.

Against a backdrop of continuing supply destruction, particularly in the U.S., and a pick-up in crude demand, markets will remain in balance this quarter and go into a deficit in 2016H2.