From: US GIO

From: US GIO To: Undisclosed recipients:; Subject: JPM View 07.27.2012 Date: Fri, 27 Jul 2012 20:18:10 40000 Attachments: JPM_View_07.27.2012-pdfaip Inline-Images: image003.png J.P. Morgan The J.P. Morgan View Why so low? Asset Allocation — Stay long better yielding bonds and defensive equines • Economics — Activity data support a bonoming in global growth. but show so far little ups yet of the expected hfi in HI • Fixed Income — Any ECB bond buying likely a temporary respite. • Equities — Still widespread skepticism and negativity suggest short covering has further to go in equines. Europe benefits the most from this short coveting. • Credit — Taxable US mucus offer spread pick-up amid the dash-from-cad, • Foreign exchange— Moderate USD strength in Q3. • Commodities — The poor outlook for agriculture production across the globe asses the ask of a reversal in the recent downtrend in EM inflation Equities are slightly up on the week and bonds are down as ECB hints of renewed bond buying offset more lackluster economic and earning news. Next week sees both the ECB and FOMC meet and an important market test for Spanish market access when it tries to issue bonds on Aug 2. Our overall strategy remains on count. with a focus on nuchnsk assets. riding a course between low-yield cash and government debt on the low-nsk side. and cyclical equrnes as the high-ask Jade. We thus prefer better-yielding equity-like bonds and bond-like equities, or corporate and EM bonds and defensive. higher-yielding equines This strategy assumes low ecoconuc and earnings growth. with modest downside, but no recession, and continued monetary easing across the world. We will be wrong. if we get either much higher world growth andtor inflation, or into a global recession. We will also be wrong if policy makers suddenly find the will and the means to become a lot more effective in boosting growth. DM fiscal authorities remain in &leveraging mode. subtractutg over 1% hem US. UK. and Euro area growth this yen, and likely also next There seems little appente to abandon fiscal discipline currently. bui we should be as the look out for any policy shifts The Fed could again reach deeply in its tool bag, likely rate conannaucatzon next week and QE3 m September. but is in our mind miming out of anuno. and thus unlikely to come up with much that unproves the economic outlook Euro area policy makers nuty have the means to muse their recession and sovereign debt crisis. As they caused them but seem to MUM too conflicted and divided to reverse conditions Next week, the ECB looks set to annotmce it will buy lx-nphery bonds again but unless it enters with ownrnebning roue (shack and awe). investors will likely use the opportunity to unload bonds to them. Today's rally to equines and sell-off in bond comes on speculation t♦at ECB President Draiths will upgrade the old SMP program into real QE, just as he upgraded lase year's liquidity injections into a massive LTRO. Given Europe's policy maker unerring ability so far to disappoint at each juncture, we are in waildnd.forever hope mode. See page 7 for analyst eertlfleadon and Important dIsetosures. Global Asst Allocation 2T Jul* 2012 Global Asset MIOCatiOn JiNkroon Ono en Ma John Normand JP Akron Seamen* Nrkolsos Pan ittrogkiti JP wow ...wortree tc Seamus Mac Gorain JP Mogan rAcuntil tic J.P. *gm swnesps Leo Evans J P Maori atom* cm tt D returns tough All 26 M. now to el ION/ <Mot BOO EY SColP SOW us sigii von us fir Oracle MSCI AC Wolf BO Mal liar (WO %ea fir LtSCI (WO' US ROI li "MIEN` Cr0i100.8Cair BA R GOA UScash Tor Wei TR a u vii, Iknari ECCete) Sile Weil*. co Pa" Zs:. • ••-• •• EFTA01179333 Thu.email “ confidential and solved w i • And disc mars and ccodnims 'nebolin cm offers for the purchase or sole of sc.-trines, noctracy end oonaplesemea of information, slaws. oonlidentiality. legal pivilege. aid 'coal rainy dm< himcrs. available al EFTA01179334