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the American system of justice must pursue its

2011 -- The Strauss-Kahn affair is not over.

which means a higher likelihood of much higher future supply. We stay short for now as we think this downtrend has further to go. We are also long gasoil vs. Brent. Global inventories are very low and demand from Asia is picking up

with all sectors gaining ground. In Wednesday’s GMOS

USD/JPY could move to 100 on a credible BoJ. Realizing these extreme targets requires Japanese participation in this yen move

which is likely why correlations across dollar-based pairs have sunk to three-year lows. The yen story still looks to us the most unique – USD/JPY is the only major asset globally where vols are up this year – and the one with broader conse...

while government bonds are selling off worldwide and inflation breakevens behave (outside the UK). And per the traditional pattern

but there is little evidence of a wider rotation out of bonds. There has indeed been some evidence of bond into equity fund flows in ETFs (best seen through our flow radars in Flows & Liquidity)

although US and European high-yield continued to rally strongly. Double-digit spread tightening sent both to new all-time yield lows; now just 5.9% in the US and 6.5% in Europe. The clear outlier this week was EMBIG

we took profit on our overweight in MSCI EMU versus S&P500 given looming Italian election risks into February

helped by rapidly improving equity ETF inflows. Strong buying by retail investors is adding fuel to equity markets against a backdrop of rather subdued macro drivers

but remain down on the year. We do not see the current surge in equities as a negative for bonds

which more by luck than skill defined the beginning of its equity rally. Topix is up 20% since then

the continued strong rallies in risk markets to new highs for the cycle are hiding the fact that recent hard data on Q4 activity have again forced us to lower our estimate of Q4 global GDP growth

if there were to be reason to raise growth and earnings projections. All we have so far is improved forward looking indicators – largely PMIs and positive feedback from asset markets – that are signaling a pickup in growth this quarter. But...

they are unlikely to reverse quickly as there is not a lot of profit on them yet. Near-term momentum thus remains good for stocks

but this week without a selloff in bonds. Much of the rally in equities is likely the aftermath of the last minute escape from Fiscal Cliff 1 on December 31. But since then

and has allowed us to join the Obama Pivot towards Asia. We stay long Japan and EM Asia in equities on stronger signs of an economic rebound in the East

with heavy manipulation that directly ensures

only China rejects elections as part of the leader-