The Year of Living Dangerously

We maintain preference for Stocks vs. Bonds, Cyclicals and Value vs. Defensive and Growth, HY over IG credit and Industrial Commodities over Gold, with an implicit bias for a weaker USD. Nominal GDP in the US may reach 10% this year, but inflation will not be enough to force the Fed to raise early. Intra-equity, Basic Materials, Chemicals, and Travel & Leisure join Banks, Energy and Financial Services as overweight, while Health Care, Telecoms and Utilities are down to underweight. We also downgrade Asia ex-Japan to underweight, but upgrade Japan, Australia and CARBNS to overweight. Our underweight Core Fixed Income is reduced by a notch, but we maintain our short duration bias, reduce o/w JGBs, remain neutral Gilts and small overweight BTPs. In EM bonds, we continue to prefer LCY debt (EMBI index) to USD debt (GBI-EM index). In real assets, preference for infrastructure over listed real estate and commodities over gold.