While negotiations over the UK’s exit from the EU or a further fall in the Chinese renminbi could rock global markets in the months ahead, we suspect that an abrupt reassessment of the outlook for US monetary policy remains the key risk. Not only do we forecast a large increase in the yield of 10-year Treasury bonds, but we also expect the US dollar to appreciate as central banks elsewhere loosen policy further. A strong dollar may weigh on US equities, but we expect a weaker yen to ensure those in Japan outperform. Emerging markets could be shaken, too. But we think they are not as vulnerable as in the past, and should benefit from stable commodity prices.
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