EFTA01380816.pdf

Economic & Asset Class Outlook March/April 2016 Outlook Monetary Policy, Inflation Alternatives and World economy Bond markets Equity markets and FX Commodities — There are initial signs that U.S. — Slower U.S. economic growth — Global bond yields will likely - Most global Indices have rallied — With oil production continuing to manufacturing may be has resulted in the FOMC remain lower for longer despite 10%4- since their Feb. lows. As come down (rig count near stabilizing with several regional downgrading their outlook on the Fed's tightening cycle and a result, valuations look seven year low) and the dollar surveys turning positive. While growth, inflation and magnitude modest pick up in inflation. stretched, technicals are remaining under pressure. housing data is solid, consumer of Fed funds rate hikes in 2016. _ The rise in yields in the near approaching overbought prices have been able to find spending has been tepid. — The ECB will likely remain in a term should be limited due to territory and near term caution near term stability. — In Europe, manufacturing has wait and see mode and let the low commodity prices, central may be warranted. — However, it is too early to been positive. the labor market aggressive actions taken at their bank QE (ECB and BoJ), - We reduced our weighting to suggest the bottom in oil prices Near Term is improving and personal March meeting (e.g. negative geopolitical risks (e.g. Brexit) global equities by lowering the is behind us. Oil prices will likely consumption is solid. However, interest rates, increased OE) and concern over at least a U.S. (still overweight) and be challenged in the near term geopolitical risks are beginning filter into the economy. modest pullback in risky assets. Europe (to neutral). as the dollar gains strength and to weigh on sentiment. — The PBOC and BoJ will keep - We remain modestly overweight - Still favor OM vs. EM. the ongoing supply/demand — Slow global growth has weighed the door open to take additional high yield but active - In the near term, global equities imbalance remains. on manufacturing and business stimulus measures to support management is recommended. may be challenged by weak - Gold has been supported by confidence in Japan. growth (e.g. QE. rate cuts). We remain underweight EM earnings, geopolitical risks and geopolitical events, aggressive — Emerging markets continue to - The USD should gain debt due to uncertain economic stretched valuations. central bank actions and slower be challenged by slow global momentum vs. the developed fundamentals. volatile - Favor select cyclicals over Fed rate hikes. trade, political headwinds and markets as Fed policy diverges currencies and heavy USD defensives. - Increased volatility to favor sluggish domestic demand. from other central banks. denominated debt burdens. select hedge funds. - In EM favor Asia over Latam. — Tighter financial conditions in — Ongoing geopolitical risks and — The rise in long term yields over - Over the next 12 months, - The combination of heightened some areas (e.g. U.S.), weak lower growth than originally the next 12 mos will likely be equities should be supported by volatility, over supply and global trade and geopolitical anticipated will likely limit the muted as moderate inflation, a improving eamings growth, stronger dollar keeps us risks have led us to downgrade Fed to raise rates one time this 'slow' Fed tightening cycle and modest economic growth and underweight commodities. our 2016 global growth forecast year (likely June meeting) with aggressive stimulus from the accommodative central banks. — However, an expectation for (from 3.4% to 3.2%). one post election. This will be ECB and BoJ keep global - However, heightened volatility better global growth (in 2016) — All developed markets were highly dependant on the outlook sovereign yields contained. will offer tactical opportunities to and likely production cuts brought lower led by the U.S. for growth and inflation. We recommend a modest short adjust positions (e.g. regions, should support a modest rise in (from 2.4% to 1.9% in 2016) as — A weak Euro and stabilization in duration to the benchmark due sectors) as warranted. oil prices over the next 12 an inventory drawdown, weak commodity prices should help to the expectation of modestly - As the economic cycle matures months (Mar 2017 target=350) . manufacturing and slow exports Europe inflation move higher. higher yields in the long run. (especially in U.S.). retums — Another way to complement may weigh on growth this year. _ Growth and interest rate Focus on select credit (e.g. IG should be driven by dividends, commodity exposure is through — Europe and Japan were differentials and diverging and high yield). History buybacks and earnings growth. investments less sensitive to the modestly reduced but monetary policy support the suggests credit outperforms - Favor DM over EM due to more price of oil (e.g. MLPs, oil aggressive central bank policy dollar long term, especially sovereigns in tightening cycles. attractive fundamentals, better transportation 8 storage). should support growth. versus the Euro and Yen. Cautious on EM debt due to the earnings visibility and greater — We favor hedge funds with a — EM growth should gradually China and India should remain uncertain growth outlook but monetary policy flexibility. focus on equity market neutral. recover as commodity prices accommodative while Latin looking for opportunities to add. - In EM, favor Asia vs. Latam due These should benefit from find a bottom, reforms take hold American countries have less Active management advised, to more attractive fundamentals dispersion within equity sectors and FX volatility subsides. flexibility due to high inflation. especially in high yield. and policy flexibility. and regions. Footnotes. Outlook as of March 2016 Muitiasset Investment Committee Meeting and 19 Wealth Management moot 22.2016 Amerces Reiaonal Cenvnittee Source: Deutsche Bart: Wealth Management CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0079376 CONFIDENTIAL SDNY_GM_00225560 EFTA01380816