From Michael Hartnett and Brian Leung at Bank of America Merrill Lynch:
« BofAML’s base case for 2015 is bullish US$, bullish volatility, bearish spreads, bullish real estate, bullish stocks, bearish rates and more opportunistic in commodities & EM. We forecast higher global growth, lower liquidity, no deflation, lower expected returns: global stocks 4-8%, US dollar 3-5%, US house prices 3%, corporate bonds 2-4%, 30-year Treasury -5%, and 1-3% for commodities. 2015 has begun bearishly with lower oil, yields and, today, a buy signal for risk assets from our contrarian Bull & Bear Index.
Our bottom lines: Our conviction in US recovery is high. We expect, by late-spring, lower oil, lower currencies and lower rates to start boosting European and Asian
We believe risk assets will ultimately generate positive returns this year, but investors may need to have patience and tolerate large market swings.
Short-term we expect risk assets to rally into the ECB QE event on Jan 22nd but volatility could quickly reappear in February if the ECB package marks “peak QE expectations”, the US earnings season is impacted by the US dollar and “credit events” related to the oil collapse become more visible. We would be more aggressive buyers of risk later in Q1. »