UBS expects equities and credit markets to remain supported in the near term as volatility retreats and trend-following funds re-leverage, though downside risks remain elevated. Analyst Nicolas Le Roux said realized volatility is forecast to decline by about three percentage points in the coming weeks, which should support long positioning as CTAs re-leverage. However, systematic funds are likely to stay more sensitive to downside risks, with any setback in U.S.-Iran negotiations potentially triggering adverse outflows, particularly amid hawkish Fed signals and reduced forward guidance. In credit, CTAs are long and adding to positions, creating a supportive backdrop, and with summer and events like the World Cup typically compressing volatility, carry trades are expected to remain well supported, with credit at the forefront. In currencies, CTAs have bought around $100 billion in U.S. dollars since the last update, with a further $40–50 billion of dollar buying expected over the coming two weeks, primarily against G10 currencies, while sterling, the Chinese offshore yuan, and commodity-linked currencies are most at risk. Commodities present the most negative picture, with CTAs selling aggressively across all four cohorts, and the pace of selling may moderate but is likely to persist, with energy contracts identified as the most vulnerable. In bonds, CTAs have begun covering duration shorts and remain biased toward further buying, particularly at the long end of the U.S. curve.
UBS Group AGUBS analyst expects supportive backdrop for equities and credit, benefiting UBS's own business
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