Asset Allocation
The pace of U.S. oil supply destruction accelerated at the end of April, as yoy losses increased to 470 thousand barrels per day (Mb/d) for the week ended April 29.
Approaching the referendum on EU membership, what are the prospects for the U.K. economy and financial markets?
China's underlying final demand for crude and oil products (excluding changes in inventories) has been weaker than is suggested by its imports of crude oil. The government has used lower oil prices to accumulate strategic petroleum reserves (SPR). Commodities prices are at a risk from weaker China/EM demand going forward.
The reflation rally continues. Despite our bearish outlook for the year, we think the risks of the current rally lie to the upside given China's redoubling of stimulus at the expense of reform. Populist troubles are picking up in Europe, but we maintain our positive structural view and note that the migration crisis is slackening. Rather, the greatest risks of populism continue to flourish in the Anglo-Saxon world with Brexit and Trump.
The U.S. dollar has fallen to almost 5% below its 2016 peak. In this <i>Special Report</i> we explore the impact of a weaker dollar on key U.S. fixed income markets.
To cheaply hedge against a "Leave" vote, go long U.K. inflation protection, reduce exposure to U.K. corporate debt, and position for a steepening of the Gilt curve.
We continue to view the rally in equities and high-yield corporate bonds since February as a high-risk affair.
U.S. dollar softness has failed to lift equities of late, a tentative warning that correlations are changing as the U.S. economy cools.
The trading action of gold is currently sending a bearish message on the dollar as the price of the precious metal has broken above critical resistance. Though the causation between the dollar and gold usually runs from the former to the latter, gold also has a tendency to sniff out broad-based moves in the greenback. We remain broadly short USD in our portfolio.
China's reflation policies have succeeded in reviving iron ore and steel prices, which are up 45.6% and 52.6% from their January lows, along with the profitability of domestic steelmakers.