Stay overweight in equities

Economics

This week we expect US non-farm employment in June to have improved after a disappointing May and the unemployment rate to hold steady. The service sector ISM should have improved again in June.

We expect both the ECB and Bank of England to keep interest rates on hold. German and UK industrial production probably deteriorated in May. Japanese machinery orders likely declined in May.

Foreign exchange

The euro/dollar rate touched 1.2000 last week, but is still trapped in a downtrend with 1.1970 as next candidate support.

The outlook for the dollar/yen rate calls for a test of the resistance boundary of the 2005 uptrend channel. This resistance lies at 110.00/111.00.

Fixed income

Better economic news coming from the US, Japan and the Eurozone should help bond yields to find a floor around current levels, but data are not strong enough to push them much higher from here.

We take profit on the GMAC 2009 and 2011 bonds we bought just after the rating downgrade last month, and keep an overall positive outlook on the credit markets.

Momentum for Emerging Market currencies is very strong, pushing valuations into expensive territory; we would stop buying the Turkish lira at current levels.

Equities

Falling oil prices and good economic figures helped the markets to redress a little. But the lack of perspective on a pause in the Fed's monetary tightening disturbed this nice picture and pushed markets lower. So the consolidation that started mid-June seems to continue.