* Global Economics: We now expect global growth of 2.9% in 2013, a touch lower than in 2012. The outlook for 2014 is cheerier. We expect the global economy to achieve above-trend growth (3.7%), supported by a rebound in developed markets (led by the US and the euro area). The spread between EM and DM growth rates is expected to be the smallest since 2002. For additional details on Emerging Markets, please see the EM Quarterly.
* US Economics: Our base case remains for the FOMC to announce a modest $10bn taper on January 29. However, the strong October nonfarm payrolls report boosted the risk of an initial tapering move in December.
* Global Equity Strategy: We stick to our long-standing overweight of equities and our end-2014 target of 1,900 on the S&P 500 but we see a heightened risk of near-term consolidation. Within a European portfolio, we believe investors should be overweight peripheral Europe.
* Technical Analysis: Japan resumes its core bull trend, and we look for the Nikkei to retest its year high and secular downtrend at 15945/16155, and USDJPY to retest 103.10/74. Copper looks to be resuming its core bear trend. We stay bearish Gold for $1157/54. We look for 10yr US/Germany to test the 2005/2006 wides.
* FX Strategy: We have been bullish on the dollar and now believe that the long-anticipated USD rally could be about to commence. With the ECB likely to have been shocked by the further disinflation in Europe over recent months, we also downgraded our forecasts for EURUSD.
* European Rates: We were neutral on outright duration but the surprise rate cut from the ECB has changed this view – we are now modestly bullish.
* US HY Credit Strategy: We had been overweight HY cash in 4Q but with the Liquid U.S. High Yield Index (LUHY) rallying 2% in October and spreads at post crisis tights, we move to a more neutral stance in HY cash.