This Market Bulletin has been produced in association with Threadneedle.

Its intended to provide you with a look back at the events that
have affected the performance of global equity markets in the last fortnight. This is a general market update and should not be considered a
comprehensive or suffcient basis for making decisions.
Mark Burgess, Chief Investment Offcer
David Oliphant, Head of Investment Grade Bonds
Leigh Harrison, Head of Equities
Our economic forecasts remain below consensus
We continue to have a relatively cautious view on the global economy, and
in particular on the outlook for developed markets. We expect the eurozone
economy to shrink by 1% in 2012 and for the UK to be fat. The US, aided
by the energy advantage provided by increased production of shale gas,
should do somewhat better at 2%, with Japan posting a similar level of
growth as production recovers following last years earthquake.
Our forecasts are also below consensus for next year - although we have
low positive numbers pencilled in for Europe and the UK, the US economy
is likely to slow from the second half of this year onwards in the run up to
the presidential election and as the incoming administration begins to tackle
the country's fscal defcit. We remain more confdent about the outlook
for emerging market growth and believe that the Chinese authorities will
succeed in managing the modest slowdown in their economy.
Eurozone remains the key risk
Economies and markets continue to be beset by a number of signifcant
risks and principal among these is the ongoing eurozone debt crisis.
The satisfactory result in the re-run of the Greek elections does not alter
the structural imbalances within Europe and these will take a number of
years to work out. Meanwhile, austerity measures are putting pressure on
society across the single currency zone as evidenced by swings against
incumbent governments in recent polls.
Peripheral Europe needs to become competitive
Real wages are unsustainably high in peripheral markets and unit labour
costs are well above those in Germany. This lack of competitiveness, and
the resulting current account defcit that Southern Europe runs with the core,
can only be addressed through a painful adjustment to a lower standard of
living in the periphery. Youth unemployment is already running at 50% in
Greece and Spain and there seems little prospect of joblessness falling in
these economies in the near term. The scope for social unrest remains high.
Banking sector still needs to carry less debt
US banks have largely succeeded in reducing their borrowing (also known
as leverage) and the UK has also made some progress, but Europe remains
well behind. Europes banking system has an equity to assets ratio of 3%
compared with 5% in the US, and this gap needs to be closed. This can be
done through European banks raising capital and/or shrinking their balance
sheets. Attempts to raise capital have not been well received to date and
it is therefore likely that banks will seek to reduce the size of their balance
sheets. This provides a further headwind to economic growth by reducing
the availability of capital for businesses and consumers. It has been
estimated that, if the European banks addressed this issue in one year,
it would result in a 15% hit to GDP. n reality it is likely to be a multi-year
process, but the impact on growth will still be signifcant.
In conclusion
Considerable uncertainties and risks remain, but we believe that these are
largely refected in valuations. We are neutrally positioned in equities overall,
with a bias away from Europe. In general, we remain focused on well-
managed and fnancially-robust businesses with the ability to boost capital
returns by returning cash to shareholders. Our research is unearthing plenty
of attractively-valued companies in this vein. Meanwhile, the unappealing
level of core government bond yields leads us to be underweight in fxed
income, with a preference for credit over government bonds. We continue to
be positive on commodities as we believe that emerging market growth will
continue to underpin demand while supply could be disrupted by geopolitical
factors. Finally, we have raised suffcient cash to be able to take advantage
of further market volatility to add to attractively valued assets.
For more information please contact:
brokersupport@threadneedle.com
Weekly Statistics (source: FT)
Key performance indicators (as at Friday 13 July 16:35 GMT) Day-by-day analysis of FTSE 100 ndex
CURRENT
VALUE
10 DAY
% CHANGE
FTSE 100 5,659 + 1.59%
Dow Jones 12,731 + 1.07%
Nikkei 225 8,724 - 0.32%
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MARKET BULLETIN 13 JuIy 2012
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