Equities: Having highlighted the risk of rising volatilities one week ago because of rising divergences, the recent drop in equity indices should come as no major surprise. We still assume an increasingly uneven performance on the equity markets in the weeks and months ahead. Given the confirmation that Greece got extensive EU/IMF financial support for its reform program, the most likely path is, after a short-term recovery, still see-sawing driven by the newsflow produced by the upcoming events (passing of the necessary laws by the national parliaments, in particular in Greece and Germany). We estimate the further upside potential is increasingly limited and we continue to expect that the environment for equity markets will slowly but surely deteriorate. We confirmed our cautious stance on equities last week by downgrading equities from neutral to underweight. Regarding sector allocation we further raised our defensive exposure. We upgraded Oil & Gas from underweight to overweight and Food & Beverage from underweight to neutral. Opposed to that, we recommend to scale back the weight of cyclical high-beta sectors. Therefore we downgraded Technology from overweight to neutral and Basic Resources from neutral to underweight.
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