Second half to be as tough as the first

We doubt a third round of quantitative easing from the Fed would whet investors’ appetite for risk. After all, the US profit cycle may be turning a corner, the global economy is slowing and the euro-zone crisis is escalating. Depressed valuations could lend support to stock markets in some countries, but we doubt they will prevent further falls in many. The prices of most commodities should also come under fire, especially if the dollar gains more ground against the euro. High-grade government bond markets should continue to benefit from ultra- loose monetary policy, but German Bunds are vulnerable both to a euro-zone break up and to greater burden sharing.