UBS On-Air: House View

Renewed concerns about US government finances are adding pressure to the dollar. Gold, broad commodities, and select global currencies can help investors diversify dollar exposure and build more resilient portfolios.

Welcome to CIO Jumpstart, your guide to the main market events coming up in the week ahead

As long-term yields remain elevated, market adjustments may increasingly occur through currencies and commodities rather than bonds alone. A weaker US dollar could support gold and help ease financial conditions, while underpinning a diversified investment approach.

Markets have welcomed signs that US policymakers are willing to respond when bond volatility rises too far, too fast. But we think lasting stability in bond markets will ultimately depend on the underlying inflation, fiscal, and demand backdrop.

Global equities have remained under pressure amid concerns over higher bond yields, rising oil prices, and the outlook for AI capital spending. But we believe the outlook for stocks remains positive. Underlying inflation remains under control, and earnings growth has picked up. Against this backdrop, we continue to view equities as Attractive.

The recent rise in long-term yields reflects new bond supply and persistent concerns over inflation and deficits. We do not think this undermines the case for quality fixed income, but it does strengthen the need to focus on shorter- and medium-maturity bonds, where we see an attractive risk-reward.

Implied volatility may not stay low for long, but resilient economic data, strong corporate earnings, and the prospect of a steady Fed should continue to support our positive view on risk assets.

Cooling US inflation has helped global stocks reach new highs, but concentration risks remain elevated. We see opportunities to diversify across Europe, Japan, and Asia, supported by earnings resilience, improving cyclical momentum, and structural growth trends.

Higher oil prices have tempered investor sentiment ahead of July’s CPI report. We expect core inflation to trend lower in the coming months, allowing the Fed to hold interest rates steady. This would be supportive of our preference for short- and medium-duration quality fixed income.

NVIDIA’s financing push has raised fresh questions about circularity in the AI trade, but strong cloud demand and rising advance orders continue to support our constructive view. We continue to recommend diversified exposure.