UK

Reflation continues to dictate short-term market moves. Behind this sugar-high, the global economic backdrop remains poor. Commodity currencies can rally for a few more weeks, but once markets refocus on Chinese and EM core weaknesses, commodity currencies will make new lows. Within the complex, favor the NOK and the CAD over the AUD and the NZD. Our portfolio remains positioned for additional yen strength.

The dollar countertrend move has more downside, but beyond the next few months, the dollar remains in a cyclical bull market. Improvements in global growth, even if temporary, are likely to lift non-U.S. rates more than U.S. ones. The euro will benefit from that move as investors still have deep negative feelings toward EUR/USD, exactly as economic momentum has moved in favor of Europe. The SEK should outperform.

Japan is in a liquidity trap: bad economic news is good for the yen while good economic news is bad for the yen. Chinese reflation could help risk assets in the months ahead, but poor EM fundamentals will reassert themselves later this year. The yen bull market is not over yet. The BoC was more positive on growth than anticipated. The BoE's Super Thursday was a non-event.

One of our highest-conviction investment ideas for the next few years.

Clients should forgive us for being too gloomy at the start of the year -- it is difficult to be optimistic in the dead of a Montreal winter. However, with springtime comes the reflation trade, born on the wings of massive Chinese fiscal and credit expansion. In this report, we discuss how long (not very) the trade can go (and how to play it). Our In Focus feature returns to pessimism, with a discussion of why the Anglo-Saxon laissez-faire economic model may be in for a big pendulum swing.

Clients should forgive us for being too gloomy at the start of the year -- it is difficult to be optimistic in the dead of a Montreal winter. However, with springtime comes the reflation trade, born on the wings of massive Chinese fiscal and credit expansion. In this report, we discuss how long (not very) the trade can go (and how to play it). Our In Focus feature returns to pessimism, with a discussion of why the Anglo-Saxon laissez-faire economic model may be in for a big pendulum swing.

The ECB's intended purchases of corporate bonds will not sustainably lift the asset-class. But we have found a compelling long-term opportunity in the sovereign bond market, and a way to hedge Brexit risk.

We continue to recommend a cautious investment stance, staying at benchmark duration, as the recovery in risk assets looks more like a counter-trend rally than the start of a new bullish run.

We are sending you the Q2 <i>Global Investment Strategy Outlook</i>, which discusses the ten predictions we expect to drive global financial markets throughout the rest of the year.

Fed dovishness is weakening the U.S. dollar. As the ECB and BoJ move to the sidelines and the Fed remains reluctant to hike rates, the euro and Japanese yen should continue to recover versus the greenback.