The Economy

Fundamentals behind the risk rally -- growth, earnings, no return on cash and low macro risk -- remain in place, but are maturing. We reduce our equity OW from 15% to 10%, and take more risk across countries in FI/FX to exploit macro divergences. We are long yield, but selectively through govies, EM FX and HY credit. Hedge geopolitical risk with oil. Across asset types, we remain long EM, but are selective.

·        Cross asset volatility

·        Fixed income

Keep credit OW small at 2% and focus on HY and EM. Add a long in UK vs. US spreads, as the UK looks too wide. A more advanced credit cycle in the US and deleveraging in Europe keep us long European vs. US HG.

Stay underweight Europe in a global portfolio. Open longs in Brazil and India within EM. Tactically go long Euro area banks within Euro area and vs. UK banks on divergent prospects from stress tests and ahead of the Scottish referendum.

Maintain USD longs vs. JPY, EUR, GBP and SEK. Stay selectively short USD/Asia.

Oil is near a 3-year low and offers a good hedge to geo-political risks. We double up our long GSCI energy index. Go short base metals on the weaker Chinese PMI. We introduce new systematic trading strategies.