From: US GIO <

From: US GIO < To: Undisclosed recipients:; Subject: JPM View 07.13.2012 Date: Fri, 13 Jul 2012 20:44:54 +0000 Attachments: JPM _ View 07.13.2012-pclizip _ Inline-Images: image003.png EFTA01178963 J.P. Morgan The J.P. Morgan View EM policy cavalry is saddling up • Asset Allocation — Position now for EM monetary easing through EM local bonds. and wait with al FX and equity longs until EM data and growth expectations have bottomed. • Economics — Q2. at 1.7%, is ending up as the weakest quarter in the recovery. so far. We project a rebound for II2. on falling inflation. but only to a still below potential pace of 2.5% EM policymakers have by far the greatest room to counteract economic weakness. • Fixed Income — We still prefer German Binds to LS Treasuries. • Equities — The US reporting season is delivering a positive suiptise. supporting equities near terra • Credit — Outright longs in US HG corporate and EL' bank bonds combine a safe and a risky asset and thus offer good diversification against changes in the growth outlook. • Foreign exchange — Still long dollar vs. euro. • Commodities — We lower our 2012 copper price forecast but raise next year's. • Fixed income continues to beat equities as investors are trimming growth expectations and wonder whether policy makers have tat it takes to reverse deflationary conditions. We similarly Sinned our Q2 estimate to 1.7%. the weakest quarterly pace, so far, in this recovery. Our economists maintain that the second half should be better. as falling inflation should boost real income. But at a projected pace of 2.5%, If2 growth would still be a good half a point below what we consider the level needed to keep global inflation and unemployment rates unchanged. • The cause of the Q2 soft patch is not entirely clear, but it is quite plausibly related to the same force that has been keeping both investors and companies cautious over the past year — fundamental uncertainty about what the fixture will bring. To some degree, this uncertainty is self fulfilling: "I will not invest if I do not see others investing also." In past decades. the marloet has then looked for policy leadership to break this logjam through decisive stimulus measures. But here we believe that G4 policy makers are either unwilling or tumble to preside mirth stimulus a in such internal disarray that they are actually adding to economic and market uncertainty. EM policymakers, in contrast• still have the ability and willingness to counteract an economic slump. and are thus creating greater opportunities for active investors. • More concretely, policy makers can boost spending through monetary stimulus, fiscal stimulus, or simply by providing more clarity about their future actions. In the advanced economies, nominal monetary policy rates have been cut to a GDP-weighted average of 0.5%, or more than 1% below inflation. As a result, the G4 have added various QE programs to push bond yields down to new historic lows. We tact t another round of G4 QE this fall. through See page 7 for analyst certification and important disclosures. Global Asset Allocation 13 July 2012 Global Asset Allocation Jan Loeys ,WMagan Chase Bain NA John Normand J.P. Motor Securities plc NikobOs PanigirtZ0glou J P. Skew Stash.. Me Seamus Mar retrain J P. Morgan Saturn*, pc Matthew Lehmann J P. Magri $10.000$ pk Leo Evans J.P. Morgan Startles Me YID returns through Jun 21 %, 1gdaH am in lighter Wee. ti t Coss ties4 VS Mr Yost ibpsU Le-CI El? Tope US He Gob Waif EU Leal Srde &ISO Euvos• VS Food Sow Gbsel Got Ssrele PIM( bocce nut Kale US ash God C43C17 Sant JP. wept Simms Reins n USC. isms enemy. nringee hW VSO. boo ?UK men s 15ca °sari enWhit BAB* at elib Cap a JPsi room Us I.:tot-1A. ins www.morganmarkets.corn EFTA01178964 This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities. accuracy and completeness of information. viruses, confidentiality, legal privilege, and legal entity disclaimers, available at http://www.Mmorgan.comtpagesidisclosureseemail. EFTA01178965