Strategy Outlook Third Quarter 2016

Credit: Neutral. Spreads could decline further as risk sentiment improves. However, deteriorating U.S. corporate balance sheets will limit the gains. Favor European corporate credit, as it will benefit from further ECB asset purchases.

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Equities: Neutral for now, but looking to go overweight. Fears of a populist uprising will spur governments to adopt more reflationary policies. This is good for global growth. Underweight the U.S., where valuations are relatively expensive and margins are under downward pressure.

Currencies: The dollar bull market remains intact. The "yen surge" is over. The euro will drift modestly lower, as will the RMB. The shift from austerity to stimulus in the U.K. will put a floor under sterling.

Commodities: Neutral. Excess supply in many corners of the market will offset the benefits of more reflationary economic policies.

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