J.P. Morgan The Morgan View Turning positive • Economics— Hard activity data are coming in more solid than depressed surveys and confidence suggest. We raise US Q3 to 2.5% and lower our US recession probability to 113. • Portfolio strategy — Better data, the start of growth upgrades and signals of coming actions to salvage the euro make us switch to a tactical long position in risk assets. • Fixed Income—A more determined tone of EA policymakers and some encouraging activity data make us turn neutral on duration in DM. • Equities —The turn in economic and market momentum is inducing us to close bearish positions. We close our UW in Cyclical sectors. We open an OW in Euro area vs. US equities and an overweight in US banks. • Credit — Economic and policy momentum lead us to take a more positive view into YE. We turn neutral on US HG and close our OW EMBIG vs. CEMBI. • Foreign exchange — Sell FX vol to position for reduced financial stress. • Commodities— Brent crude prices should remain around current levels through to the end of the year, supported by cuts in OPEC production. • Risk markets rallied this week, even as EMU spreads widened, and safer government bonds sold off on a softening of some of the acute macro risks that have been battering markets this year. None of this is enough to convert one into a raging bull, but there is enough to expect risk markets to break out of their recent depressed ranges over coming weeks. We thus reverse some of our defensive exposures into a modest, net long risk position. World markets continue to focus on an unchanged trio of macro risks — US recession, euro meltdown, and a Chinese housing bust. Stacked against these three are massive risk premia on equities and credit over cash and safer government bonds that make undenveighting riskier assets very expensive. Over the two years through Q I of this year, the high risk premium dominated, but over the past four months, each three of these threats e