J.P. Morgan Global Asset Allocation 21 September 2012 • The J.P. Morgan View Weak economy vs. strong liquidity. Who wins? • Asset allocation — Strong liquidity, heavy supply of safe assets, high risk premia, defensive positioning by end investors, and a QE focus on reducing downside risk are not technicals but are true fundamental drivers of the risk rally that trump weak economic growth, in our view. Economics — Q3 global growth remains as soft as Q2, confirming bottoming process, but not yet a rebound. Only rising order/inventory ratios and rallying markets hint at rebound into Q4, we believe. We nudge up 2013 Euro area growth from 0.2% to 0.3% on improved financial conditions. Global Asset Allocation n AC JPK4organ Chase Bank NA John Normand J.P. Morgan Securities plc Fixed Income —Position on wider swap spreads in Treasuries, Bunds and UK. Nikolaos Pan' irtzoglou • Equities — Stay long value stocks in Europe, commodity sectors globally, US- housing-sensitive sectors within the US, and US against EM. J.P. Morgan Secunties plc Credit — Stay long credit spreads across the US HY and EM sovereigns and corporates and we expect further spread compression. Seamus Mac Gorain Currencies — New FX forecasts, with weaker dollar into year-end. J.P. Morgan Securities plc Matthew Lehmann Commodities — We think agriculture prices have peaked and will move lower from here. Open a short in the GSCI agriculture index. Markets took a breather this week, after last week's fireworks, with equities and credit largely flat, and bonds yields and commodities down. It was a quiet week for data, but what we got was on the softer side. We continue to think global growth is bottoming, but the evidence so far confirms only that growth has come down and that Q3 seems equally soft as Q2. There seems no real J.P. Morgan Securities plc Leo Evans J.P. Morgan Securities plc evidence yet of a rebound in growth. All we have is a rise in orders relative to YTD re