V i e w p o i n t | 14 Aug 2025 20:17:45 ET │ 26 pages Global Macro Strategy - Views and Trade Ideas Stay long local EM and EM carry — We continue to stay long EM local, FX hedged, into the Sep FOMC. Growth may still come off in the RoW, when there is pay back for tariff front-running. Separately, we are long EM carry. Of our two warning signals, positioning is currently a headwind, although it only becomes a problem if volatility spikes, too. Unwinding our SNB payer — We took profits on one of our very few ...

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Global Macro Environment** with a focus on **North America** and **Emerging Markets**. Core Insights and Arguments - **US Rates and Currency Movements**: - US rates rallied by 3-4 basis points across the curve despite a lack of fundamental catalysts, supported by lower oil prices (WTI: -1.5%) and technical factors as Fed leadership remains in focus [6][6][6] - The US dollar weakened, with the DXY index at 97.38 (-0.5%), as yield differentials favored other safe-haven currencies [6][6][6] - **Japanese Government Bonds (JGBs)**: - Following the upper house election, JGBs modestly steepened, with 2-year JGBs rallying approximately 2 basis points while 30-year JGBs sold off by 1 basis point [6][6][6] - **Philippine Peso (PHP)**: - The PHP strengthened by 0.2% against the USD ahead of a meeting between Philippine President Marcos and US President Trump, which resulted in a trade agreement reducing proposed US tariffs on Philippine goods from 20% to 19% [6][6][6] - **UK Public Sector Borrowing**: - An upside surprise in UK Public Sector Net Borrowing was reported at £20.7 billion, exceeding the consensus estimate of £17.5 billion, leading to a 0.2% strengthening of GBP against EUR [6][6][6] - **European Bond Market**: - European duration extended its rally, with 10-year Bund yields closing 2 basis points lower, reflecting unchanged inflation expectations and lower ECB pricing, with approximately 33 basis points of cuts expected through March 2026 [6][6][6] Additional Important Information - **Emerging Markets**: - CEEMEA rates bull-flattened, particularly in Poland and the Czech Republic, with notable moves in South Africa where ZAR outperformed [9][9][9] - The National Bank of Hungary (NBH) maintained its policy rate at 6.5% and lowered its reserves requirement ratio from 10% to 8%, indicating a cautious monetary policy approach [9][9][9] - **Economic Releases**: - Upcoming economic releases include Singapore CPI, Taiwan Industrial Production, and South Africa CPI, with forecasts indicating slight increases in inflation metrics [12][12][12] - **Auction Preview**: - A Treasury auction of $13 billion in 20-year bonds is scheduled, with predictions indicating a 0.2 basis point through based on historical auction performance [16][16][16] This summary encapsulates the key points discussed in the conference call, highlighting significant movements in rates, currencies, and economic indicators across various regions.

Investment Rating - The report suggests a bearish outlook on the USD and recommends selling USD while buying curve steepeners [9][13][53]. Core Insights - The report indicates that the consensus view aligns with a weaker USD and a steeper yield curve, but the expected magnitude of these moves is significantly larger than what the consensus anticipates [9][13]. - It is projected that the USD will weaken by approximately 9% on a DXY basis and that the US Treasury curve will steepen by around 100 basis points over the next 12-18 months [13][20]. - Investor positioning is currently cautious, but supportive fundamentals and strengthening sentiment suggest a favorable environment for the recommended trades [9][13]. Summary by Sections G10 FX Strategy - The report highlights that while a weaker USD is a consensus view, the extent of the weakening is underpriced, with only a 15-25% chance assigned by the market to reach the forecasted levels against major safe-haven currencies [3][31]. UK Rates Strategy - The report notes the closure of a long position in SFIZ6 due to a recent rally in front-end rates, but identifies an attractive entry point for upside option structures given low implied volatility [4][26]. Japan Rates Strategy - The focus is shifting from the Bank of Japan (BoJ) to the Ministry of Finance (MoF) regarding long-end issuance and quantitative tightening (QT) pace, which may influence market dynamics [5][30]. US Rates Strategy - The report discusses entering 2s10s CPI swap steepeners, as the TIPS breakevens curve has steepened, indicating potential for further widening based on financial conditions and inflation expectations [6][36]. General Market Dynamics - The report emphasizes that recent USD declines are primarily driven by reduced investor appetite for USD exposure due to policy uncertainty rather than concerns about US growth [17][20]. - It also notes that the USD discount reflects a negative policy premium associated with uncertainty around US trade and fiscal policy [18][19].

Investment Rating - The report indicates a dovish outlook for G10 policy rates through 2026, suggesting a significant decline in rates, particularly in the US, where 10-year Treasury yields are expected to reach 4.00% by the end of 2025 and just above 3.00% by the end of 2026 [6][27]. Core Insights - The report emphasizes that the US dollar is expected to weaken significantly, with the DXY forecasted to fall an additional 9% over the next 12 months to 91, driven by a convergence in US rates and growth to peers, alongside increased FX hedging flows [6][69]. - The report outlines a bearish outlook for global growth, particularly in the US, where real GDP growth is projected to decline from 2.5% in 2024 to 1.0% in both 2025 and 2026, influenced by tariffs and immigration restrictions [15][23]. - Inflation is expected to moderate globally, with core PCE in the US forecasted to reach 4.5% before declining, while the euro area is projected to undershoot the ECB's inflation target due to sluggish growth [23][34]. Interest Rate Strategy - In the US, Treasury yields are expected to range trade through 3Q25 before declining, with a forecast of 10-year yields at 4.00% by the end of 2025 and a larger decline in 2026 as the Fed is anticipated to cut rates by 175 basis points [3][27]. - The euro area is projected to see the 10-year Bund yield fall to 2.40% by 4Q25 and 2.20% by 4Q26, influenced by more ECB easing than currently priced in [3][35]. - In the UK, 10-year gilt yields are expected to end 2025 at 4.35% and 2026 at 3.80%, with the Bank Rate projected to decline further due to a slowdown in economic activity [41][43]. Currency & Foreign Exchange - The report forecasts continued weakness in the USD, with significant declines against safe-haven currencies such as EUR, JPY, and CHF, as the DXY is expected to fall to 91 by mid-2026 [8][69]. - Specific currency pairs are projected to move as follows: EUR/USD to rise to 1.25, GBP/USD to 1.45, and AUD/USD to 0.69 by mid-2026, reflecting various economic factors [8][69]. Inflation-Linked Bonds - In the US, breakevens are expected to remain elevated until 3Q25 due to tariff-induced inflation, with a tightening forecast around 2Q26 as inflationary pressures begin to cool [9]. Sovereign Supply Outlook - The report anticipates a decrease in net coupon bond supply across the G7, amounting to US$2.72 trillion in 2025, down 5% year-over-year, influenced by fiscal policy uncertainties [53][62].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The report indicates a positive outlook for risk assets due to recent developments in trade negotiations, suggesting a potential disinflationary impact [2] - The US effective tariff rate is currently at approximately 13%, the highest in 100 years, which may dampen US growth but could also avoid a recession [9] - The report highlights the importance of upcoming fiscal policies and their potential impact on market dynamics, particularly regarding the new tax and spending bill [30][31] Summary by Sections Trade War Developments - The trade war is ongoing, but there are indications that the US may lower tariffs if they become economically burdensome [8] - Current tariffs are seen as a medium-term drag on US growth, with potential deflationary effects on services [9] - The report emphasizes the significance of non-China trade deals in shaping future tariff rates and market conditions [12] Fiscal Policy Outlook - The new fiscal bill is expected to increase deficits, with projections suggesting a potential rise to 7% of GDP [30] - Key components of the bill include increased business tax benefits and changes to child tax credits, which may influence market reactions [31] - The correlation between equities and rates is expected to drive USD performance based on fiscal outcomes [31] Currency and FX Strategy - The report advocates for a focus on high-yield currencies, particularly in Latin America, while maintaining a cautious stance on low-yielders [40] - There is a noted trend of outflows from low-yield currencies, with a preference for high-yield investments [38] - The report suggests that the current environment may favor FX carry strategies, particularly from the long side [36]

Investment Rating - The report does not explicitly provide an investment rating for the industry or assets discussed. Core Insights - The analysis suggests that foreign investors may be perceived as "overweight" in US assets, but this is complicated by the home bias of US investors, indicating that US investors are likely underweight in foreign assets [10][11][23]. - An appropriate allocation to US equities relative to the global opportunity set is estimated to be between 56-65% [10][16]. - The report indicates that the USD is expected to weaken if both foreign and domestic investors reduce their exposure to US assets through shifts in asset allocation or changes in currency hedge ratios [10][28]. Summary by Sections Foreign Exposure and Home Bias - The characterization of foreign exposure to the US as "overweight" requires a benchmark for analysis, with the US comprising 71% of the MSCI World index and 62% of the MSCI ACWI [12]. - Many investors exhibit a "home bias," holding a larger share of US equities than suggested by neutral weights, which complicates the assessment of whether they are truly overweight [10][19]. Market Capitalization and Earnings - The US share of global equity market capitalization is 67%, which adjusts to 60% when normalized by long-run P/E ratios [20]. - The US accounts for 56% of global corporate earnings and 27% of global GDP, indicating a significant presence in the global market [20]. Currency and Hedging Strategies - The report discusses the potential impact of changes in hedge ratios on currency markets, noting that investors from the eurozone have the largest holdings of US equities, followed by Canada and the UK [30][32]. - An increase in FX hedging could have a more substantial impact in markets with less liquidity, particularly for currencies like NOK, CAD, SEK, and KRW [34]. Future Outlook - The report anticipates continued USD weakness due to falling US rates, increased FX hedging of US investments, and rising risk premiums from policy uncertainty [45][58]. - The analysis suggests that the DXY could decline by 6% as a result of these factors, with the most significant weakness expected against JPY and CHF [44][58].

Core Viewpoint - The article emphasizes that a HODL strategy may not yield significant alpha or maintain a high Sharpe ratio over the long term, suggesting that active management is essential for maximizing returns and minimizing opportunity costs [1]. Group 1: Investment Strategy - The company advocates for active management in investment strategies to achieve high positive returns, indicating that simply holding assets is insufficient for generating high alpha [1]. - It is highlighted that seeking high returns does not equate to generating high alpha, which is a critical distinction for investors [1]. Group 2: Analyst Background - The analyst has a strong educational background with a degree in Business Economics from UCLA and a Master of Accounting from UMich Ross School of Business, indicating a solid foundation in financial analysis [1]. - The analyst's experience includes a role as a senior analyst at a multi-strategy hedge fund, showcasing expertise in fundamental equity research and global macro strategy [1].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Investors should prepare for continued market volatility and hold their convictions loosely while maintaining tight stop-losses [1] - The narrative around the global outlook has shifted, with expectations for the EUR to strengthen against the USD, targeting 1.20 [4][61] - Tariffs are raising prices and harming consumer confidence, which may lead to adverse economic impacts before any easing from the Federal Reserve takes effect [10][62] - The supply of global fixed income safe havens is at multi-decade lows, while demand for them is at local highs [10][32] - A gradual reduction in foreign investor exposure to US equities is observed, while fixed income exposure remains stable [46][71] Summary by Sections Global Macro Strategy - The US administration's trade policy is causing uncertainty, and the perceived 'master plan' may not effectively mitigate economic pain from tariffs [11][12] - Consumer and CEO confidence have declined, indicating potential economic slowdown [13][22] US Rates Strategy - Concerns about liquidity in funding markets are rising, with pressures expected to persist due to tax collections [6][62] - The report suggests staying short on certain securities as market conditions remain fragile [59] Euro Area Rates Strategy - A shift to a received 5y5y real yield position is recommended, as Europe is viewed as a safer haven asset [5][60] G10 FX Strategy - A new tracker for US outflows from foreign investors has been introduced, indicating a trend of reduced exposure to US equities [7][44] - The DXY is expected to decline as foreign investors continue to reduce their US asset exposure, particularly benefiting the EUR [44][71] Safe Haven Analysis - The report highlights a significant drop in AAA/Aaa rated bonds globally, exacerbated by the recent downgrade of US long-term debt [32][33] - Investors have fewer safe-haven options outside US Treasuries, which may become more pronounced if the macro environment deteriorates [38][39]