The J.P. Morgan View: The risk trade and the spread trade.
· Asset allocation: Overall low tactical risk, but most focused on underweighting the world’s hotspots, Europe and banks. China and EM are starting to perform better. We retain a token overweight of risky assets.
· Economics: Global activity data remain fine, with unchanged forecasts, but the market correction creates a downside risk bias.
· Fixed Income: Sell the front end in the US and Australia, where the payoffs to short positions are asymmetric.
· Equities: Underweight small caps vs large caps, especially in Europe.
· Credit: Remain underweight European banks.
· FX: Stay short EUR vs CHF, MXN and EM Asia (ADXY).
· Commodities: Stay long crude oil. Again a very volatile week, not just in price terms, but also in daily sentiment swings. This morning, we saw hints that a noisy bottom was starting to form in risky asset classes, but markets then lurched down again after bad headline news from Hungary and US Payrolls. Our best guess –– rather than strong conviction
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