Investment Rating - The report maintains a bearish outlook on the US dollar due to moderating US exceptionalism and a more growth-supportive monetary and fiscal mix overseas [6][11][14]. Core Insights - The report highlights that while tariffs remain a headwind for global growth, several currencies such as Antipodeans, NOK, EUR, and JPY are expected to turn the corner on growth [6][11]. - In developed markets (DM), the bearish USD recommendations are barbelled for either a US slowdown (long JPY) or a soft landing scenario (long Scandis, Antipodean, EUR) [6][11]. - In emerging markets (EM), there is a broadening overweight across regions with a preference for Asian creditor currencies (like KRW) and CEE euro-proxies (like CZK) [6][11]. - The report emphasizes that 2025 is different from previous years as no single factor is dominating global FX returns, necessitating a separate analysis of G10 and EM [6][11][24]. - G10 FX forecasts remain unchanged for EUR/USD at 1.22 and USD/JPY at 139, with upgrades for GBP, NZD, and CAD based on improved domestic prospects [6][11][48]. - EM forecasts include a reduction for USD/CNY to 7.15 and USD/ZAR to 17.50, reflecting a more favorable outlook for these currencies [6][11][48]. Summary by Sections Key Currency Drivers - The report identifies several macroeconomic factors influencing FX returns, including US-China trade talks and tariff adjustments [7][8]. - It notes that the reduction of tariffs from 145% to approximately 41% for a 90-day period is a significant development [7][8]. FX Models - The report discusses the performance of various currencies and highlights that the best-performing currencies are often those with current account surpluses [24][25]. - It also notes that the carry-to-value rotation is finally playing out in G10, with surplus countries outperforming [24][25]. G10 FX Short-term Fair Value - The report maintains forecasts for major currency pairs, with a bullish bias on EUR and JPY due to US moderation [56]. - It also highlights that GBP and NZD forecasts have been upgraded based on growth resilience and improved domestic conditions [56]. Technicals - The report indicates that external balances, particularly current account surpluses, have been among the best signals for global FX returns this year [24][25]. - It emphasizes that equity momentum has been a strong strategy for G10 currencies, benefiting from lower policy activity among central banks [24][25]. Trade Recommendations - The report suggests rotating AUD/USD into a long AUD and NZD basket against USD, citing improved domestic prospects for New Zealand [41][56]. - It also recommends an overweight position in EM currencies, particularly in Asia and EMEA, while remaining selective in commodity and frontier markets [23][56].

Economic Indicators - US Manufacturing and Services ISM data fell below consensus, indicating potential slowing growth[1] - Non-Farm Payrolls (NFP) growth slightly exceeded expectations, but the unemployment rate remained flat, suggesting a mixed economic outlook[1] Monetary Policy and Interest Rates - The European Central Bank (ECB) reduced the deposit rate by 25 basis points and lowered its 2026 inflation projection to 1.6%[1] - Yield curves flattened across regions, with US bonds experiencing a sell-off due to higher front-end and real rates[2] Foreign Investment and Currency Forecasts - Section 899 highlighted concerns regarding foreign investors' appetite for US assets, potentially leading to further USD weakness[3] - EUR/USD forecasts were adjusted to 1.17, 1.20, and 1.25 for 3, 6, and 12 months respectively[3] Equity Market Reactions - US high dividend yield (DY) stocks slightly underperformed compared to the broader market, while non-US stocks with high US exposure showed muted returns[4] - Estimated impact on STOXX 600 earnings is projected at 5% by year four, with companies having options to mitigate this impact[4] Asset Allocation Strategy - The firm maintains a neutral stance in asset allocation, advocating for increased international diversification in equities and bonds[7] - US equities have partially recovered year-to-date underperformance, primarily driven by mega-cap stocks, while the S&P 500 equal weight remains flat against global indices[7]

Investment Rating - The report maintains a neutral stance on asset allocation, advocating for diversification, particularly in international equities and bonds [8]. Core Insights - The report highlights a renewed focus on the demand for US assets from foreign investors, with potential risks from incremental tax and policy changes affecting their appetite [3]. - US equity markets have shown limited reaction to recent economic data, with high dividend yield stocks slightly underperforming compared to the broader market [4]. - The report notes that US mega-cap stocks have been the primary drivers of the recent recovery in US equities, while the S&P 500 equal weight index remains flat against global counterparts [8]. Economic Indicators - Recent economic data indicates that both US Manufacturing and Services ISM came in below consensus, while non-farm payroll growth slightly exceeded expectations, suggesting a slowdown in US growth [1]. - The European Central Bank (ECB) has lowered its deposit rate by 25 basis points and downgraded its inflation projection for 2026 to 1.6% [1]. Yield Curves and Interest Rates - Yield curves have flattened across regions, with US bonds experiencing a sell-off following the non-farm payroll report, driven by higher front-end and real rates [2]. - The report anticipates that the last rate cut by the ECB will occur in September, with expectations of further rate cuts from the Swiss National Bank [2]. Currency and Foreign Exchange - The report's foreign exchange strategists have adjusted their EUR/USD forecasts to 1.17, 1.20, and 1.25 for 3, 6, and 12 months respectively, reflecting concerns over US fiscal sustainability [3]. - The correlation between the US dollar and other assets has reverted to more normal levels, although the gap between the dollar and rates differentials remains wide [3]. Earnings Impact - The report estimates a potential impact of 5% on STOXX 600 earnings by year four, although companies may have offsetting options such as re-listing in the US [4]. Asset Allocation Recommendations - The report suggests an overweight position in US government bonds, while maintaining a neutral stance on equities and advocating for international diversification [22].

Investment Rating - The report maintains a bearish view on the USD, driven by underlying fundamentals rather than expectations of any multilateral accords [4][6]. Core Insights - The potential "Mar-a-Lago Accord" has been a topic of discussion among FX market participants, aimed at engineering USD weakness through various approaches, including punitive tariffs and adjustments in FX reserves [2][3]. - Recent USD weakness has been primarily European-led, attributed to a macro re-think regarding US exceptionalism and structural changes in US international policy [4][5]. - Asian FX appreciation has sparked speculation of a currency accord, indicating a potential shift in trade negotiations with the US [6][20]. - The report suggests that if USD/Asia continues to weaken, it would benefit cyclical currencies and broaden the dollar weakness, particularly impacting EUR/USD positively [40][41]. Summary by Sections USD Weakness Drivers - The report identifies cyclical and structural factors contributing to USD weakness, including declining real policy rates and a shift in US fiscal policy [5][9]. - Historical data indicates that the most bearish periods for the dollar occur when the term premium rises alongside a decline in Fed terminal rates [9][13]. Asian FX Dynamics - Recent movements in Asian currencies, particularly TWD, have broken historical records, leading to significant declines in USD against various Asian currencies [21][24]. - The report highlights that speculation around a currency accord has likely contributed to the strength of Asian FX, despite the absence of official confirmation [28][34]. Trade Recommendations - The report recommends buying AUD/USD and AUD/NZD, while suggesting selling USD/JPY and CHF/JPY as part of a macro portfolio strategy [65]. - It emphasizes that cyclical currencies like AUD are well-positioned to benefit from a potential rollback of tariffs and improved trade conditions [41][61].

Investment Rating - The report maintains a defensive tactical stance with an overweight (OW) on bonds and cash, neutral (N) on credit, and an underweight (UW) on equities and commodities for the next three months [4]. Core Insights - Financial markets are currently navigating between the risks of a US recession and the concept of US exceptionalism, leading to a sell-off in US cyclicals compared to defensives and a widening of credit spreads [2][3]. - Recent equity market rallies have been supported by easing global growth concerns and more dovish monetary policy expectations, with technology stocks, particularly the Nasdaq, leading the rebound [3][10]. - The report highlights a significant outflow of approximately $60 billion from US stocks by foreign investors since March 1, indicating a shift in investor sentiment [3]. Summary by Sections Market Overview - US existing home sales and Euro area composite PMIs have both come in below expectations, while non-farm payrolls (NFPs) are expected to rise by 140,000 in April, above consensus [1]. - The market has begun to price in higher recession risks, leading to a relative underperformance of US equities compared to non-US equities [2]. Asset Allocation Recommendations - The report suggests focusing on domestic defensive sectors in Europe and taking advantage of resets in cross-asset volatility to add selective overlay hedges [4][15]. - The allocation recommendations include an underweight in equities across various indices, with specific forecasts for the S&P 500 and other major indices indicating potential downside in the short term [15]. Performance Metrics - The report provides performance metrics indicating that US equities, particularly the Nasdaq, have outperformed other indices since April 21, while Asian markets, especially China, have lagged [3][10]. - The correlation between US and non-US equities has started to decline, suggesting a potential shift in market dynamics [3][9]. Valuation and Risk Premia - The report includes a cross-asset valuation table showing current valuations and their percentiles relative to the past ten years, indicating that US equities are at a 71% expensiveness percentile [59]. - The current dividend yield for the S&P 500 is 1.5%, which is at the 16th percentile compared to the last ten years, suggesting a relatively low yield environment [62]. Fund Flows and Positioning - The report notes significant fund flows, with a focus on the cumulative flows across various asset classes, indicating a preference for safe assets over risky ones in recent weeks [74][78]. - The positioning data shows net long positions in equities and commodities, reflecting investor sentiment and market expectations [86][88].

Investment Rating - The report maintains a cautious outlook on US equities, lowering the S&P 500 year-end target to 5,800, reflecting a reduction in earnings estimates and valuation assumptions [4][54][63]. Core Insights - The recent US tariffs are viewed as a negative supply shock, likely leading to increased inflation and reduced economic growth, with core PCE inflation projected to reach 3.5% by year-end and real GDP growth slowing to near zero [10][29]. - The European economy is expected to face downward pressure due to tighter financing conditions and a direct negative demand shock from tariffs, prompting the European Central Bank to cut policy rates [11][44]. - Emerging markets, particularly "Factory Asia," are significantly threatened by the tariffs, with export-led economies experiencing substantial growth shocks and rising inflation [12][46]. Summary by Sections US Economics - The average effective tariff rate is estimated at about 21%, representing an 18% increase, and is expected to remain elevated for at least 3-6 months [3][25]. - The Federal Reserve is anticipated to respond to economic weakness with policy rate cuts, potentially totaling 125 basis points this year [10][30]. European Economics - The US tariffs are expected to have interwoven consequences for the European economy, leading to a shift towards a more domestically driven growth model, which may result in higher real rates and inflation over time [11][36]. - A J-shaped profile for growth, inflation, and policy rates is anticipated, with all three metrics expected to decline in the near term before rising again [45]. Emerging Markets Economics - The tariffs pose a significant threat to export-led economies in Asia, with simulations indicating asymmetric impacts and necessitating aggressive monetary easing by central banks in the region [12][46]. - Countries like Vietnam and Mexico are particularly exposed to the US market, facing substantial growth shocks due to the tariffs [47][50]. US Equities - The S&P 500 year-end target has been lowered to 5,800, with a reduction in the 2025 earnings estimate to $255, reflecting a wider range of potential earnings outcomes due to tariff uncertainty [4][54][63]. - The report suggests that the market volatility and tariff announcements have led to a significant reevaluation of earnings growth expectations for 2025 [54][56]. Commodities - The commodities outlook is bearish for oil and copper while bullish for gold, aligning with the anticipated impacts of the tariff growth shock [6][19].

Investment Rating - The report indicates a neutral investment stance with a BofA Bull & Bear Indicator reading of 4.8, slightly down from 4.9, suggesting a cautious approach to risk assets [7][48]. Core Insights - The report discusses the transition from "US exceptionalism" to "US repudiation," highlighting a significant shift in foreign ownership of US assets, with foreigners holding 33% of US Treasuries, 27% of US corporate bonds, and 18% of US stocks [1][10]. - The report emphasizes the impact of higher US yields leading to lower stock prices and a weaker US dollar, which is driving global asset liquidation [2][17]. - It suggests that the S&P 500 valuation floor of 20x has now become a ceiling, indicating a bearish outlook for US equities [1][25]. Summary by Sections Treasury Ownership - Foreign ownership of US Treasuries has reached 33%, with the financial sector holding 31% and the government 24% [3]. Market Flows - There was a significant inflow of $48.9 billion into equities, driven by a $70.3 billion inflow to passive funds, while bonds experienced a $20.8 billion outflow [11][26]. - The report notes the largest weekly inflow into Treasuries at $18.8 billion and the largest outflow from high-yield bonds at $15.9 billion [16][27]. Economic Indicators - The report indicates that the US household equity wealth has decreased by $8 trillion year-to-date, following a $9 trillion increase in 2024, reflecting a negative wealth effect [18][22]. - The S&P 500 is projected to be priced-in around 4800, with expectations of a short and shallow recession [22][25]. Investment Strategies - The report recommends being long on 2-year Treasuries and short on the S&P 500 until there is a significant policy response from the Federal Reserve or a resolution in the US-China trade tensions [2][17]. - It advises investors to focus on high-quality corporate bonds yielding 5-6%, equities with strong dividend yields, and to consider emerging markets and commodities as potential investments [25][26].