Refining the reflation rotation 2017 is likely to have a number of cross currents as themes. Recovery (we look a modest acceleration in both growth and inflation) and Rotation go hand in hand. On the basis of our central forecasts for growth, inflation and rates and given the moves in the market already we think that the pace of the rotation has to moderate. (In-line with that we recently downgraded of banks and miners). Reversal refers to the ECB. Our economists are not yet convinced that the ECB will start to unwind loose policy 2017 but the probability is increasing. An ECB that tapers because growth and inflation are improving would be supportive for markets, notably banks. But tapering because the ability or willingness to do QE fades would likely cause a setback. Relief or Revolt relates to European politics. Will Europe follow the route to populism (revolt from the voters) or will we find relief for the markets by the end of 2017 from a Fillon/Merkel duo being in charge of the Euro area’s two largest economies. We think investors will demand a higher risk premium until the French Elections in May 2017 Valuation are reasonable at 14x PE but Europe is cheap on a relative basis and the valuation overhang remains evident in the region’s equity risk premium, which implies 11% upside to get back to 5-year average levels. We see a return to positive EPS growth (+7%) in Europe for the first time since 2014, as 3.5% global GDP growth should deliver positive earnings growth (supported by Resources recovery, capex discipline and FX. +7% growth implies less downgrades than usual (10% is the average). Bond yields and equities — stable/higher inflation breakevens are key. Equities can continue to perform in an environment of higher rates — the key is that inflation breakevens are not falling. However, a more aggressive bond sell-off taking Treasury yields to 3% or higher would undermine EM, the growth outlook and risky assets. The rotation out of bond proxies and Defensive