- Europe is on the precipice of a deflationary shock. Fiscal and monetary stimulus must be enacted to prevent a deflationary spiral. Monetary stimulus will not be enough.
- Low European sovereign yields will continue to fuel the carry trade into the Treasury. This will bolster the Dollar and may negatively impact our export market. Labor market trends will not provide historic support to the real yield component of long-term Treasuries.
- Low domestic yields remain a tailwind to domestic equity pricings. While shocks to our system may occur, the path of least resistance is up for equities. However, the market could be vulnerable to a correction with QEIII set to end next month.
- Chinese equity markets may have broken out of a six year bear market. They are supported by their cheap fundamentals and reforms that have been enacted under President Xi and Premier Li. Weakness in the Chinese economy may lead to a cut in the SHIBOR rate, which would be another bullish development for Chinese equities.
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