The global financial crisis that began with the banks was only ever temporarily resolved by shifting risks to governments and has now resurfaced in sovereign credit markets. The necessary fiscal tightening will be a drag on developed economies for many years, undermining equities and the prices of industrial commodities, but also keeping interest rates and high-grade government bond yields low.

Even if the US loses its AAA rating, we therefore continue to expect 10-year Treasury yields to end the year at around 2.5% and stay there for some time. We also expect the dollar to be seen again as a less bad prospect than the euro, which may not survive at all. Gold should continue to benefit from strong demand for a safe haven, but some emerging markets deserve this status too.