Global Economic Growth Facing Headwinds

There is increasing evidence that global growth is stuttering, with recent data from the world's largest economies suggesting that Q2 2014 expansion may have been worse than originally thought.  Headwinds are weighing heavily on Chinese, Japanese and European economic activity.

The US remains an outlier, but the American economy is not going to be able to support global growth by itself. Even as the Fed is put under increasing pressure to hike rates in 2015, monetary easing by other major central banks and the relative attractiveness of US yields are likely to continue propping up long-end US bonds and the dollar.

The spread between US and eurozone bond yields appears to be topping out, and we see potential relative value in US bonds. We also maintain our bearish asset class strategy view on the euro, which should continue to suffer from the poor eurozone outlook, further potential ECB easing, and broad-based US dollar strength.