Barclays Capital: Global Outlook - Stay the course
Date: 23 June 2011
Language: English
Format: PDF
Pages: 130

Table of Contents

OVERVIEW..........................................................................................................................................4
Stay the course
Despite persistent risks associated with fiscal consolidation in Europe and the US, and with
inflation and monetary tightening, we would not recommend underweighting risky assets.

ASSET ALLOCATION.........................................................................................................................9
(Not so) great expectations
We see no glaring inconsistencies between our view and current asset prices, which
suggests that asset-allocation opportunities are likely to be limited in magnitude and more
tactical in nature.

ECONOMIC OUTLOOK.....................................................................................................................28
The core under the soft
The soft patch is quite widespread, due not only to exogenous factors (commodity prices,
the Japanese earthquake), but also to indirect effects from policies, coupled with limited
room for further policy action.

COMMODITY MARKETS OUTLOOK..............................................................................................48
Headwinds are stronger, but so are upside risks
Increasingly, degrees of supply constraint will be the main differentiators of price
performance in commodities. We favour crude oil, copper, corn and gold in Q3.

FOREIGN EXCHANGE OUTLOOK ...................................................................................................58
USD: “Decline and fall” or “The loved one”?
If the euro area crisis abates, the USD is likely to depreciate further, especially relative to
European currencies. However, if growth was to slow further, or the euro area crisis to
deteriorate further, the USD could be a key beneficiary.

INTEREST RATES OUTLOOK...........................................................................................................67
The hold steady
We expect US rates to stay range-bound in Q3 and the yield curve to remain steeper than
the forwards, especially in 5s-30s. In Europe, market focus has been on the ongoing
sovereign fiscal crisis. In Japan, we look for a gradual bull flattening move.

CREDIT MARKET OUTLOOK...........................................................................................................83
Low yield, high supply
The recent back-up in spreads has created buying opportunities in various markets as new
issue supply continues to be the key driver of spread performance.

EQUITY MARKET OUTLOOK...........................................................................................................98
Summer doldrums, autumn harvest
We recommend buying US equities on weakness through the summer. In Europe, we
maintain our structural bull case given robust earnings momentum, inexpensive valuations,
extreme investor sentiment and negative positioning. In Japan, we recommend overweight
positions in machinery, chemicals, and rubber products.

EMERGING MARKETS OUTLOOK................................................................................................ 114
Summer storms
The economic landscape appears particularly cluttered with risky turning points. We
maintain our constructive outlook but think that it makes sense to limit risk taking and
carefully pick thematic trades.