The analysts at J.P.Morgan concluded last Friday:
Markets corrected against the recovery trade this week as activity data in a number of countries disappointed. But the correction has been quite mild so far, pushing risky asset prices and spreads back to levels seen only a few weeks ago. Unlike the June-July correction, this one is not purely technical, and is thus more challenging. Even so, the threat to the recovery trade from two weeks of weaker data is not sufficient for us to turn the ship around. We stay in the recovery trade but keep tactical exposures below normal.
Click on chart to enlarge, courtesy of J.P.Morgan.
The view on markets currently stands as:
• Portfolio strategy: The recovery trade may seem a bit wobbly, but the asset reflation trade––dumping zero return cash for any other asset––is making up the difference. Stay long equities and credit.
• Economics: 3Q is tracking light, but not enough to change forecasts.
• Fixed Income: Trade the range. We go short in USTs.
• Equities: Take profit on Cyclicals overweight in Europe, moving to neutral.
• Credit: Credit requires only moderate economic growth, and investor demand remains strong. Stay long in both HG and HY in the US.
• FX: Focus on currencies of under-owned equity markets.
This "asset reflation" appears so "organic"...
The view on markets currently stands as:
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