UBS House ViewMonthly Base August 2019

Chief Investment Office GWM

All forecasts in this publication are as of 18 July 2019 at 09:00am CET and might change after that. Thispublication will only be updated intra-monthly to reflect changes in our TAA positions or thematic views. To getour most recent forecasts, please refer to our publication called "Global forecasts".

PublishedJul 18 2019

This report was prepared by UBS AG.Please see the important disclaimer at the end of the document.This document is a snapshot view. We update the tactical asset allocation as changes occur and resend it to subscribers. For all otherforecasts and information, we advise you to check the Investment Views section in your E-Banking or in Quotes.

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For further information please contact Head CIO Global Asset Allocation Andreas J Koester, andreas.koester@ubs.com or CIO asset class specialists Philipp Schöttler, philipp.schoettler@ubs.com or Carolina Corvalan, carolina.corvalan@ubs.com.

Financial Market Outlook – short term Lower bond yields globally isencouraging a search for carryYield-to-worst, in %

-0.5

-0.2

0.1

0.4

2.0

2.3

2.6

2.9

3.2

3.5

Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19

USD HG (left) EUR HG (right) CHF HG (right)

Source: Bloomberg, UBS, as of 12 July 2019

Near-term EURCHF risks are to thedownside as global central banks areexpected to ease monetary policy

0.8

1.0

1.2

1.4

1.6

1.8

2.0

82 85 88 91 94 97 00 03 06 09 12 15 18 21 24 27

PPP EURCHF TEEER EURCHFEURCHF central scenarioupside scenario downside scenario

Source: Macrobond, UBS, as of 12 July 2019

Global Tactical Asset Allocation

• Asset allocationLower trade tariff uncertainty following the G20 meeting and expectations for further easing from global central banks are supporting risky assets.The G20 meeting between President Xi and Trump has led to a truce, with tariffs on hold for now. While this sets the scene for a restart to US-China dialogue, neither side appears to be in any hurry to find a trade deal, and we expect a prolonged ceasefire period. Amid signs of continuedweakness in global manufacturing and trade, and muted inflation expectations, global central banks have turned increasingly more dovish. Weexpect the Fed to cut rates later this month, which is likely to lead the ECB to cut rates too. A continued low interest rate environment shouldbe favorable for carry positions. We hold a neutral allocation to equities. While earnings growth has weakened this year, the equity risk premiumremains attractive, as bond yields have fallen to historically low levels.

• EquitiesPre-emptive Fed rate cuts create a supportive backdrop for stocks, and, given low interest rates, equity valuations look attractive relative to bonds.While we still expect global economic growth to stabilize in the second half of the year, risks around China-US trade remain elevated. Assuming ourrisk scenarios do not materialize, we believe equities can advance moderately. We are closely monitoring the current earnings season for furtherdownside risks to the earnings outlook. We have an overweight in Japanese and US equities vs Eurozone equities. While both the Eurozone andJapan are heavily geared to the global cycle, the former has priced in a macro recovery while the latter has not. Eurozone stocks look expensivecompared to the Japanese market. In addition we prefer US versus Eurozone stocks as the former should deliver superior profits growth in 2019and 2020. We also believe that the Fed has more ammunition than the ECB to combat slowing growth should trade tensions escalate.

• BondsWe increase our overweight in EUR IG against higher-rated bonds. We expect the former to be supported by stabilizing Eurozone growth andaccommodative ECB policy. We consider the carry attractive against healthy corporate fundamentals and our base case of no recession over thecoming 12 months. We also add an overweight in EM sovereign bonds in USD against HG bonds, as the search for yield should provide continuedsupport and valuations are fair. We hold a tactical short on the 2-year US Treasury note. While the Fed seems increasingly likely to cut rates aseconomic data globally disappoints, we think that market pricing of around four rate cuts by the end of 2020 is too pessimistic.

• Foreign exchangeEasier monetary policy globally should support safe-haven currencies, where central banks have limited room to ease policy further. We close ourunderweight positions in the CHF against the EUR and the NOK. We keep our NOK overweight against the CAD, while shifting the other positionfrom CHFNOK to EURNOK. Both positions aim to benefit from central bank divergences. As the US and China agreed on a truce and the RBA hascut rates twice, downside risks to the AUD diminished. We thus close our underweight position in the AUD against the USD and shift our longGBP versus short AUD into a long GBP versus USD position. We increase our allocation to a basket of select EM currencies vs pro-cyclical developedmarket currencies to profit from the attractive interest rate advantage.

• Longer-term asset allocation (1-4 years)We are underweight UK equities. While the UK was formerly seen as a conservative, lower risk market, prolonged Brexit uncertainties could changethis view and lead to a rising risk premium. Emerging market US dollar-denominated sovereign bonds have a more favorable longer-term risk-returnoutlook, in our view. We also recommend investors in Japanese equities not to hedge the currency exposure as the JPY is significantly undervaluedand offers long-term appreciation potential against the USD, the EUR and the CHF.

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Cross-asset preferences We like... We don't like...

Equities

• Global equities

• Japanese equities

• US equities

• Global quality stocks

• "Buy-write" strategy on US equities

• US smart beta

• Some protection via US equity put options

• UK equities (1–4 year horizon)

• Eurozone equities

Bonds

• Emerging market sovereign bonds USD

( )

• Euro investment grade corporate bonds

( )

• Global green bonds

• Mind the gap – Corporate "rising star"candidates

• Time to be more selective in EM credit

( )

• Developed market high grade bonds

( )

• 2-year US Treasuries vs. USD cash

• "Well-worn" bonds

• Mind the gap - Corporate "fallen angel"candidates

Foreign exchange

• Norwegian krone versus...

• Norwegian krone versus...

• British pound versus...

• EM FX (ZAR, INR, IDR) versus... ( )

• Japanese yen (1–4 year horizon) versus...

• ...Euro ( )

• ...Canadian dollar

• ...US dollar ( )

• ...DM FX (AUD, NZD, TWD) ( )

• ...base currency

Hedge Funds

Precious Metals& Commodities

Recent upgrades Recent downgrades

Model portfolios (EUR & USD)*

Liquidity5% High grade

bonds6%

US TIPS 2%

Inv. gradecorporate

bonds 12.5%

High yieldbonds5%

EM bonds7.5%

Equities others6%

Equities EM4%

Equities Europe18%

Equities US14%

Hedge Funds18%

Risk Parity2%

EUR

Liquidity5%High grade

bonds4%US TIPS

4%

Inv. gradecorporate

bonds12.5%

High yieldbonds5%

EM bonds7.5%

Equities others7%

Equities EM5%

Equities Europe7%

Equities US23%

Hedge Funds18%

Risk Parity2%

USD

Source: UBS, as of 18 July 2019; * Additionally, the portfolios include anunderweight 2-year US Treasuries bonds (via overlay) and a put option on the S&P500 index.

Note: Portfolio weightings are for a EUR model portfolio and aUSD model portfolio, with a balanced risk profile (including TAA).We expect the EUR balanced portfolio (excluding TAA) to havean average total return of 2.8% p.a. and a volatility of 7.9% p.a.over the next seven years. We expect the USD balanced portfolio(excluding TAA) to have an average total return of 5.1% p.a. anda volatility of 7.9% p.a. over the next seven years.

3

Global tactical asset allocationTactical asset allocation deviations from benchmark

Liquidity

Equities total*

Global

US

Eurozone

UK

Switzerland

Canada

Japan**

Emerging markets (EM)

Australia

Bonds total

High grade bonds

Corporate bonds (IG)

High yield bonds

EM sovereign bonds (USD)

EM corporate bonds (USD)

EM local currency bonds

US TIPS

Duration overlay (USD)

Duration overlay (JPY)

Hedge Funds

new (up to 12m horizon) old

neutral overweightunderweight

new (1-4 years horizon)

Source: UBS, as of 18 July 2019

Please note that the bar charts show total portfolio preferences, which can be interpreted as therecommended deviation from the relevant portfolio benchmark for any given asset class and sub-asset class.*We are holding a put option on the S&P 500 to partly protect the tactical asset allocation.**Currency exposure of Japanese equities is not hedged.

Currency allocation

USD

EUR

GBP

JPY

CHF

SEK

NOK

CAD

NZD

AUD

EM FX basket***

DM FX basket***

Base currency

new (up to 12m horizon) old

neutralunderweight overweight

new (1-4 years horizon)

Source: UBS, as of 18 July 2019

*** EM FX basket contains South African rand, Indian rupee, Indonesian rupiah. DM FX basketcontains Australian dollar, New Zealand dollar, Taiwanese dollar (all equally weighted).

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UBS Chief Investment Office GWM considers the highlighted themes as fitting the sustainability framework.

CIO themes in focus Equities • US smart beta

Certain stock characteristics (momentum, quality, small capitalization, risk-weighting, value, and yield) have been shown to deliver long-term investment outperformance relative to a market-capitalization-weighted index. Combining these characteristics, known in the industry as smart beta, makes the investment less cyclical and creates a "passive-plus" solution. Smart beta'scompelling value proposition has resulted in considerable growth in assets. Smart beta ETF assets have risen to over USD 700bn and are growing by more than 30% a year.

• Generate yield: "Buy-write" on US equities

An equity buy-write strategy involves the purchase of equities (the "buy" part) while systematically selling (or "writing") call options that cover the position, typically on a monthly schedule. Inexchange for giving a counterparty the right, but not the obligation, to buy the underlying asset at a predetermined price, the buy-writer receives a premium. Over an economic cycle, equitybuy-write strategies generate attractive risk-adjusted returns as they capture both the equity and volatility risk premium. They are most appealing when equity returns moderate and marketmomentum decreases and, historically, perform strongly during periods of rising rates.

• Global quality matters

The quality factor aims to reflect the performance of companies with durable business models and sustainable competitive advantages. It therefore targets companies with a high return onequity, stable earnings, and low financial leverage. In the late stage of the business cycle, when economic growth slows down and volatility rises, quality matters. As trade uncertainties remain,a global sector-neutral quality strategy can also offer added downside protection in a relative context.

Bonds • Green bonds: Sustainability meets late-cycle stability

We view green bonds as a sound, sustainable alternative to global investment grade (IG) bonds. While an individual green bond usually performs in line with an otherwise identical non-greenone, the green bond market has a more conservative sector and risk profile and benefits from demand for sustainable investments outgrowing supply. This should lead to outperformanceduring times when credit risk premiums rise, making green bonds an appealing late-cycle investment, following the recent recovery in credit risk premiums globally. To benefit from greenbonds’ less cyclical profile, investors should diversify broadly and in particular avoid issuer concentration risk.

• Replacing well-worn bonds

Risk-free yields in some major developed markets are near or below zero. Even if rates stay unchanged, many short- to medium-term bonds would deliver negative total returns. We thinkinvestors can preserve wealth by taking profits on assets that will deliver negative returns (exceeding switching-out costs) in most likely scenarios. More attractive alternatives can be foundon CIO's bond recommendation lists.

• Mind the gap: Investing in the crossover zone

Investors able and willing to stomach the potential volatility of "crossover credit" investments can earn potentially significant alpha if key rating agency action is anticipated correctly. Whilewe emphasize that investments into BBB or lower quality bonds are not suitable for risk-averse investors, we provide credit views on the issuers trading in the crossover area. We also offerlong and short bond baskets to help investors navigate the crossover zone.

• Time to be more selective in EM credit

With this theme, we provide advice on how to build diversified exposure to emerging market (EM) credit, drawing from our top-down view on the asset class, as well as the bottom-up insightsof our credit analysts. Emerging market credit should benefit from accommodative global liquidity conditions, resilient (though slowing down) global growth, sound credit fundamentals, aswell as the relative attractiveness of the asset class against other credit market segments. While emerging economies are on aggregate at an earlier stage in the business cycle than developedmarkets, there are big differences between countries and market sectors. Exposure to global risks vary from country to country as well. We think it is becoming increasingly important to investin the right credits, and to actively adjust exposure toward the most promising opportunities.

This selection of themes is a subset of a larger theme universe. It represents the highest conviction themes of the UBS Chief Investment Office GWM, taking into account the current market environment and risk-returncharacteristics.

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UBS Chief Investment Office GWM considers the highlighted themes as fitting the sustainability framework.

CIO longer-term investment themes in focus Equities • Enabling technologies

We have identified five mainstream enabling technologies – artificial intelligence (AI), augmented reality/virtual reality (AR/VR), big data, cloud computing and 5G – that are set to transformmany industries over the next decade. We expect them to grow in aggregate by an average 12.8% annually, from USD 420bn in 2017 to USD 1.1trn in 2025. Hence, we believe enablingtechnologies offer solid long-term growth as technological disruption is an irreversible trend. Investors can take part in this by investing in a diversified way in our theme of enabling technologies,with leading software and semiconductor companies emerging as winners.

• Obesity

Urbanization and rising per capita GDP in emerging markets will contribute to a greater prevalence of obesity globally in the coming decades. Western economies are most associated withthe obesity epidemic, but it is no longer just a rich-world problem. On current trends, the combined global prevalence of obesity and overweight could exceed 40% by 2030.

• Fintech

Driven by rapid urbanization, strong demand from millennials, and favorable regulations, the global fintech industry is at an inflection point and set to drive a major digital transformationin the financial services industry. We expect global fintech revenues to grow from USD 120 billion in 2017 to USD 265 billion in 2025, implying an average annual growth rate that's aboutthree times faster than the broader financial sector's.

• Space

The sharp decline in launch costs is lowering entry barriers to space. We forecast the space economy will likely grow from USD 340 billion currently to almost USD 1 trillion in the next couple ofdecades, catalyzed by sustained capital investment by new-economy billionaires. Investment exposure at this early stage is best gained via existing listed companies in the aerospace, satellite,and communications segments. New space startups may offer investment opportunities in private markets.

• Emerging market infrastructure

Growing urbanization and the expansion of megacities in emerging markets, as well as high economic growth rates, are driving demand for infrastructure investment. Spending on EMinfrastructure is expected to grow to USD 5.5 trillion from the current USD 3 trillion, bringing its share of global spending to two-thirds by 2025 from the current half. Inadequate urban andnationwide infrastructure acts as a bottleneck to economic growth, making infrastructure investment a national priority.

This selection of themes is a subset of a larger theme universe. It represents the highest conviction themes of the UBS Chief Investment Office GWM, taking into account the current market environment and risk-returncharacteristics. The Longer Term Investment (LTI) theme series focuses on inevitable global trends, such as population growth, aging, and urbanization, that create a variety of opportunities, with certain companies andsubsectors experiencing a higher-than-GDP rate of revenue growth. Here, we include a subset of a larger universe of LTI themes expected to offer good entry points for theme-oriented investors in the coming months,and highlight our preference for a diversified approach to themes.

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Key investment risksScenario Description

US equities 0% to +5% based on our 17x forward eps estimates

Chinese equities -5% to 10% amid higher volatility due to tariffs and sanctions againsttech companies weighing on earnings

EURUSD between 1.15 and 1.20 as the Fed eases and European economy stabilizes

US equities down -10 to -15% as forward earnings decline 5% and valuation falls

Chinese equities down 15% as sentiment tanks further with worse-than-expectedeconomic consequences

USD appreciates to around EURUSD 1.10 and USDCNY 7.1 7.3, as US tariffs support theUSD

US IG -2% to -3% as spreads widen to 280bps, 5y US Treasury drops back to 2016 lowand additional loss from 5-10% rating dongrades into HYUS HY -8% to -10% with spreads widening to 800bps. Default rates increase to 5%within 6 monthsUS equities -10% to -15% as earnings growth disappoints by 5% and valuationcompresses by 5% to 10%

US equities +5 to 10% upside as forward estimates rise towards USD 180 and theforward P/E expands to 17xChinese equities +10% to 15% due to a recovery on valuation as growth beatsconsensus expectations

USD depreciates to EURUSD 1.20 1.25 and USDCNY 6.4 6.7

Chinese equities +10 to 15% due to a recovery on valuation as growth beatsconsensus expectationsEMBIGD bonds return 2% to 3% as spreads tighten to around 310bps due to improvingEM growth prospectsCNY up to USDCNY 6.4 6.7 as strong Chinese growth supports the domestic equitymarket, preventing outflows and supporting inflows of capital

Selected Scenarios Expected market performance for select asset classes

Base casePositive outlookwith increased

volatility

Global economic growth slows but theexpansion remains intact. Corporate earningsgrowth slows. However, ongoing trade tensionsand uncertainty about Eurozone growth keepvolatility high.

De-escalation

Both countries strike a new deal that partiallyrepeals current duties with a further phase outconditional on Beijing fulfilling the tradedeal's terms.

Chinese GDP growth remains in a 6.6 6.8%range as the current account balance goes backabove USD 100bn.

Please refer to the last published Global Risk Radar edition for further details on the risk scenarios and investment implicationsFor further information please contact CIO strategist Dirk Effenberger, dirk.effenberger@ubs.com

Expected total returns over a 6-month horizonNote: Upside and downside scenarios are possible events outside of CIO's base case expectations.

China: GDPgrowth

accelerates

Key upsidescenarios

Keydownsidescenarios

Tariff escalation

Further sanctions are implemented, with the USadministration imposing tariffs on the remainingChinese imports after the conclusion of thehearing process.

US creditcrunch

triggering abear market

US corporate leverage has increased to recordhigh levels by certain standards. A combinationof risk factors could lead to rising default riskand a sharp rise in spreads.

Source: UBS, as of July 2019

7

For further information please contact US economist Brian Rose, brian.rose@ubs.com, European economist Ricardo Garcia, ricardo-za.garcia@ubs.com or UK economist Dean Turner, dean-a.turner@ubs.com

Key financial market driver 1 - Central bank policyKey points• It appears likely that the US Federal Reserve (Fed) will cut the policy rate at its next meeting on 31 July.• The European Central Bank (ECB) is set to lower its deposit rate in 2H in response to expected lower policy rates in the US.• In reaction to the ECB's easing, a rate cut by the Swiss National Bank has become a possibility. The Bank of England's policy remains

contingent on the nature of the UK-EU separation, although without that uncertainty rates would probably rise.

CIO view (Probability: 60%*) Fed and ECB ready to cut rates• The US Federal Reserve has signaled that it is likely to cut rates at its next policy meeting on 31 July. Although economic and

financial conditions are strong, inflation remains stuck below the Fed's 2% target and inflation expectations have movedlower. The Fed views risks as skewed to the downside. Further, the yield curve has been inverted, which in the past has oftenforeshadowed that a recession is coming. 50 basis points of cuts should be enough to ensure that the yield curve moves out ofinversion. That cut could come all at the next meeting or be spread out over two meetings.

• The ECB is set to lower its deposit rate by 0.1% each in September and December in response to lower US policy rates. We thinkthat the hurdle for a new QE program remains significant and would require further shocks.

• In many countries, inflation remains below the central bank's target despite very loose monetary policy and low unemploymentrates.

• The tone has shifted as political risks have created economic disruption. Central banks appear keen not to amplify those risks byadding to the uncertainty. Even with the Fed and ECB ready to cut, most other central banks should remain on hold in the nearterm.

Positive scenario (Probability: 30%*) Further policy easing as macro backdrop worsens

• Political policy errors threaten economic growth either through more aggressive trade disruption or weaker US or European growth.Central banks respond to the changing economic outlook with easing that goes beyond our base case forecasts.

Negative scenario (Probability: 10%*) Inflation rises on tight labor markets and tariffs

• Tighter labor markets move from squeezing profit margins to causing firms to raise prices more significantly. Trade taxes are passedon more comprehensively than has been the case so far.

*Scenario probabilities are based on qualitative assessment.

Key datesJul 25Jul 31Aug 1

European Central Bank policy decisionUS Federal Reserve policy decisionBank of England policy decision

Inflation falls below the Fed's 2% targetPCE price index year-over-year change and Fed 5-yearforward breakeven inflation, in %

0

1

2

3

4

2010 2012 2014 2016 2018PCE Fed 5-year forward breakeven inflation

Fed target

Source: Bloomberg, UBS, as of 10 July 2019

Note: PCE = Personal Consumption Expenditures

Policy directionCentral banks are shifting toward easier policy

Current policyrate

2019 policy rateoutlook

2019 outlook for centralbank balance sheet as %

GDP

US Federal Reserve (FedFunds)

2.50%

European central bank(Refi rate)

0.00%

Bank of Japan(Balance rate)

-0.10%

Bank of England(Base rate)

0.50%

Source: Bloomberg, UBS, as of 15 July 2019, using UBS forecasts

8

For further information please contact CIO strategists Jeremy Zirin, jeremy.zirin@ubs.com, David Lefkowitz, david.lefkowitz@ubs.com or Edmund Tran, edmund.tran@ubs.com.

Key financial market driver 2 - Growth is bottoming outKey points• Corporate profit growth has decelerated• But growth should pick up later this year• We expect S&P 500 EPS growth of 1% in 2019 and 7% in 2020.

CIO view (Probability: 60%*) Earnings growth should reaccelerate later this year• US earnings growth has decelerated as the one-time boost from a lower tax rate fades and economic growth slows in the US

and overseas. While a material decline in profits looks unlikely—as leading indicators such as access to capital and new claimsfor unemployment insurance remain supportive—profit drivers have weakened over the last few months. Business sentiment hasfallen (top chart), tariffs have risen, and overseas growth has slowed.

• As such, we trim our full year S&P 500 EPS estimates (bottom chart). 2019 falls from USD 168 to USD 165 (1% growth) while2020 falls from USD 179 to USD 176 (7% growth). By sector, the reductions are concentrated in energy, industrials, and tech.Our expectations for average oil prices in 2019 have fallen by about 10% since the start of the year, driving a reduction in ourexpectations for energy sector earnings. Our reduced expectations for industrials and tech reflect a couple of factors: weakerthan expected global manufacturing activity and higher tariffs on US imports of Chinese goods.

• Second quarter S&P 500 earnings growth will likely be similar to the first quarter with aggregate S&P 500 growth up 1-2%.Encouragingly, growth for the average company will be faster, around 5%. Earnings weakness in some of the largest companies(in tech and energy) is masking the healthier trend.

• However, earnings growth should modestly re-accelerate later this year and beyond as the economic expansion continues,comparisons in the energy sector get easier, and tech markets stabilize, especially for semiconductors.

• We expect profit margins to fall by 0.5% in 2019. Still, we don't expect margins to decline on a sustained basis. The weaknessthis year is a result of slow revenue growth and idiosyncratic factors in various sectors such as investment spending incommunications services and currency headwinds in consumer staples and tech. Most of the pressure is not due to rising wages.Labor-intensive consumer discretionary companies are the most exposed to higher wage costs but, outside of this sector, theaverage company should be able to offset higher wages through greater productivity and targeted price increases. Also, bear inmind that higher wages typically translate into faster consumer spending.

Positive scenario (Probability: 20%*) Central bank stimulus and trade dispute resolution

• Aggressive global central bank stimulus and a resolution to the trade dispute between the US and China drives a re-accelerationin growth.

Negative scenario (Probability: 20%*) Downturn in sentiment

• Trade and geopolitical tensions flare up, depressing business and consumer sentiment. Wage pressures, without improving consumerand business demand, crimp profit margins and earnings growth rates. Declines in long-term interest rates pressure financial sectorearnings.

*Scenario probabilities are based on qualitative assessment.

Key datesJul 15 2Q earnings season begins

Business sentiment has moderated but shouldremain positiveISM manufacturing index and S&P 500 EPS growth,recessions in gray

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

30

35

40

45

50

55

60

65

70

75

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

ISM, advanced 6 months (left) S&P 500 earnings - y/y (right)

Source: UBS, as of 10 July 2019

Revising our estimates lower, but still expectinggrowth to pick-up in 2020Annual S&P 500 EPS growth

168(+3%)

179(+7%)

165(+1%)

176(+7%)

130

140

150

160

170

180

190

2019E 2020EOld New

Source: Bloomberg, UBS, as of 10 July 2019

9

For further information please contact Regional CIO Switzerland Daniel Kalt, daniel.kalt@ubs.com, CIO Chief Economist Eurozone Ricardo Garcia, ricardo-za.garcia@ubs.com or CIO USEconomist Brian Rose, brian.rose@ubs.com

Global economic outlook - SummaryKey points• Global growth has been very stable around trend for an unusually long time. Risks to that stability are growing as a result of trade

uncertainty.• Domestic demand remains relatively good in most economies. Consumer goods production is generally strong. Weakness in

investment spending slowed growth in 2018 and disproportionately hurt trade. That has started to stabilize.• The risk of a global recession in 2019 remains relatively low, but a period of below-trend growth seems increasingly likely.

CIO view (Probability: 50%*) Global growth around trend or slightly below

• Labor market strength continues in most major economies, giving consumers better income (via increased employment,increased wages, or both). Global unemployment is at or near a 40-year low. Stimulus measures in China are prioritizing growth.Consumers have to-date been largely unaffected by political uncertainty.

• Manufacturing data support the idea of relatively strong consumption. Any weakness in manufacturing has been focusedgeographically or by sector (investment goods rather than consumer goods).

• As trade risks started to fade during the first quarter, investment and manufacturing data started to stabilize (consistent withtrend growth). The escalation of trade tensions in the second quarter raises risks to that. The longer the uncertainty around tradelasts, the greater the drag on economic performance. This means that trade could still weaken growth, even if ultimately dealsare done.

• Underlying inflation trends remain relatively benign although the stronger labor markets should be monitored. Core producerprice inflation is an important signal of corporate pricing power. So far, profit margins rather than inflation seem to be bearingthe brunt of higher costs.

Positive scenario (Probability: 20%*) Growth at or above trend

• Trade uncertainty declines, allowing a significant increase in investment. Labor markets continue to support consumer demand.

• Fiscal stimulus in China has positive spillover effects into Asia.

Negative scenario (Probability: 30%*) Political damage to growth

• Trade taxes rise significantly and act as a fiscal drag on growth. Increased taxes lead to the cancellation (rather than just thepostponement) of investment.

• The growth slowdown from these factors leads to a reassessment of employment. Job losses undermine consumer spending.*Scenario probabilities are based on qualitative assessment. Key dates Jul 25Jul 31Jul 31

ECB press conferenceEurozone GDP estimate for 2QFOMC rate decision

Can trend growth continue?UBS estimates and forecasts

2016 2017 2018 2019F 2020F 2016 2017 2018 2019F 2020FAmericas US 1.6 2.2 2.9 2.8 2.0 1.3 2.1 2.4 1.7 2.0

Canada 1.1 3.0 1.9 1.2 1.8 1.4 1.6 2.2 1.9 2.0Brazil -3.3 1.1 1.1 1.0 2.2 8.7 3.4 3.7 3.8 3.7

Asia/Pacif ic Japan 0.6 1.9 0.8 1.3 1.3 -0.1 0.5 1.0 1.0 2.0Australia 2.8 2.4 2.8 1.9 2.4 1.3 1.9 1.9 1.5 2.0China 6.7 6.8 6.6 6.2 6.1 2.0 1.6 2.1 2.3 1.9India 8.2 7.2 6.8 6.7 7.1 4.5 3.6 3.4 3.6 3.9

Europe Eurozone 1.9 2.5 1.8 1.3 1.3 0.2 1.5 1.8 1.2 1.4Germany 2.2 2.5 1.5 1.0 1.3 0.4 1.7 1.9 1.4 1.7France 1.1 2.3 1.6 1.3 1.4 0.3 1.2 2.1 1.3 1.4Italy 1.2 1.8 0.7 0.3 0.8 0.0 1.3 1.2 0.7 0.5Spain 3.2 3.0 2.6 2.2 2.0 -0.3 2.0 1.7 0.9 1.5

UK 1.8 1.8 1.4 1.4 1.2 0.7 2.7 2.5 2.0 2.2Switzerland 1.6 1.7 2.5 1.3 1.6 -0.4 0.5 0.9 0.5 0.9Russia 0.3 1.6 2.3 1.0 2.1 7.0 3.7 2.9 4.6 3.7

World 3.3 4.0 3.8 3.4 3.6 2.7 2.7 3.0 2.9 2.8

Real GDP grow th in % Inf lat ion in %

Source: UBS, as of 15 July 2019

Forecasts and estimates are current only as of the date of thispublication, and may change without notice.

The great Great ModerationGlobal growth has been very stable in the recent past,around trend

Source: Oxford Economic Forecasting, via Haver

10

For further information please contact US economist Brian Rose, brian.rose@ubs.com

US economy - US growth heading back toward trendKey points• Economic growth should slow toward trend as fiscal stimulus fades• Core inflation should remain near the Fed's 2% target• Policy uncertainty creates downside risks.

CIO view (Probability: 60%*) Moderate expansion• GDP expanded at a 3.2% pace in 1Q19. As fiscal stimulus fades, growth should slow toward a more sustainable pace, in line

with the 2% potential growth rate.

• While demand for workers remains strong, job growth is likely to slow as most people who want a job already have one.

• Rising wage income and strong consumer sentiment should support robust growth in consumer spending.

• Strong profits and labor shortages will encourage businesses to invest. However, political uncertainty, especially on trade, will actas a constraint.

• Manufacturing output has surprised to the downside year-to-date. Excess inventories, softening auto sales, and weaker externaldemand are negatives.

• Residential investment has declined in recent quarters. Mortgage rates are down from their highs, and demand for housingshould be supported by the strong labor market, limiting further downside risk.

• Core inflation, which excludes food and energy prices, has slowed recently but should not fall too far below the Fed's 2%target.

• The Fed shifted to a more dovish stance at its policy meeting on 19 June. We expect a rate cut in July.

• With support from fiscal policy fading, further escalation of trade disputes or another government shutdown could pose a moreserious threat to the recovery.

Positive scenario (Probability: 15%*) Strong expansion

• US real GDP grows above 3%, propelled by an accommodative monetary policy, loose fiscal policy, strong household spending, andbreakthroughs in trade negotiations. Inflation overshoots the Fed's 2% target, potentially leading the central bank to raise ratesbeyond neutral.

Negative scenario (Probability: 25%*) Growth recession

• US growth stumbles. Trade disputes, political uncertainty, and tighter financial conditions weigh on business investment and consumerspending. The Fed cuts rates sharply.

*Scenario probabilities are based on qualitative assessment.

Key datesJul 26Jul 31Jul 31Aug 1

GDP for 2Q19Employment Cost Index for 2Q19FOMC rate decisionISM manufacturing PMI for July

Growth is slowingISM Manufacturing PMI and Non-manufacturing Index

30

40

50

60

70

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Manufacturing PMI Non-manufacturing Index

Source: Bloomberg, UBS, as of 10 July 2019

ISM = Institute for Supply ManagementPMI = Purchasing managers' index

More job openings than people to fill themUnemployed workers and job openings, in millions

0

5

10

15

20

2007 2009 2011 2013 2015 2017 2019Unemployed workers JOLTS job openings

Source: Bloomberg, UBS, as of 10 July 2019

11

For further information please contact CIO Chief Economist Eurozone Ricardo Garcia, ricardo-za.garcia@ubs.com

Eurozone economy - Moderate growth with downside risksKey points• We expect economic growth in the Eurozone to remain stable, subject to trade tensions.• Inflation is set to move slightly higher in 2H driven by base effects.• We expect the ECB to cut the deposit rate in response to expected lower US policy rates.

CIO view (Probability: 60%*) Growth outlook subject to trade uncertainties• Activity is set to remain stable at moderate levels as long as trade uncertainties remain. In the event of a further significant

escalation, growth is likely to turn out lower than expected. The ECB is expected to respond to anticipated lower policy rates inthe US by lowering the deposit rate by 0.1%both in September and December (coupled with interest rate tiering).

• In Germany, the stiff global export environment has increased the risk of a recession. However, fiscal stimulus measures anda strong service sector should help avoid it. In France, the slowing of yellow-vest protests, reforms and fiscal stimulus shouldcontinue to help stabilize GDP growth.

• Growth in Italy should continue to stabilize following the budget agreement with the European Commission and stabilizingEuropean growth. Spain is still growing strongly, but the momentum is likely to continue to normalize.

Positive scenario (Probability: 10%*) Better-than-expected growth

• The global economy accelerates again and the euro weakens. Eurozone loan demand and the economy recover faster thanenvisaged. Political risks fade.

Negative scenario (Probability: 30%*) Disinflationary setback

• The Eurozone suffers a disinflationary setback as trade tensions escalate sharply, markets lose faith in Italy's debt sustainability,Brexit talks fail, or the Chinese economy suffers a severe downturn.

*Scenario probabilities are based on qualitative assessment.

Key datesJul 24Jul 25Jul 31Jul 31Jul 31

Flash PMI for JulyECB press conferenceUnemployment for JuneGDP estimate for second quarterInflation estimate for July

Eurozone growth consolidatingBusiness and consumer surveys

Source: Haver Analytics, UBS, as of June 2019

ECB balance sheet topping outTotal assets in national currency (index: 2007=100)

Source: Haver, UBS, as of June 2019 (SNB data as of May 2019)

12

For further information please contact CIO China economist Yifan Hu, yifan.hu@ubs.com or CIO analyst Kathy Li, kathy.li@ubs.com

Chinese economy - Pressure remains despite stabilizationKey points• Recent economic developments signal continued downward pressure despite stabilization.• Both monetary and fiscal policies stay supportive.• Sino-US trade tensions remain a key risk.

CIO view (Probability: 80%*) Stabilization on policy support• 2Q19 GDP growth moderated to 6.2% from 6.4% in 1Q19, in line with expectations. The contribution of consumption,

investment, and net exports to GDP growth in 1H19 was 3.79%, 1.21%, and 1.3%, respectively. We expect 2019 GDP growthto meet the government target of 6–6.5%.

• 1H retail sales growth stabilized at 8.4%, with support from resilient consumer staples. Fixed-asset investment grew 5.8%,with weaker real estate and manufacturing investment vis-à-vis increased infrastructure investment backed by local governmentbonds. Both export and import growth decelerated significantly to 0.1% and –4.3% respectively in 1H due to rising tariffs.

• 1H CPI inflation averaged at 2.2%, with continued upside risk in 2H on surging pork prices. PPI inflation remained muted at0.3% with deflation risk in 2H on weakening industrial demand.

• Monetary policy stays accommodative. The central bank cut the reserve requirement ratio (RRR) for small and medium-sizedbanks in May, June, and July, each time by 100bps. It also conducted another bill swap of CNY 2.5bn in June in exchange forbank perpetual bonds, following its first such operation in February. The central bank is likely to make another 100–200bps ofgeneral RRR cuts, together with lending facilities, to keep liquidity sufficient. 1H credit growth stabilized at 10.9%.

• Fiscal policy remains active. More favorable rules were announced to support infrastructure investment, allowing the use ofspecial local government bond proceeds as equity capital, and promoting the financing channels for large-scale projects.

• Sino-US trade tensions remain a key risk. The much-awaited Xi-Trump meeting at the G20 ended with an agreement to a truce.Our base case remains a postponed partial deal, with more imports, greater market access, and stronger IP protection on China'spart. Meanwhile, China has actively promoted its strategic partnership with non-US economies, especially Japan. Talks on aChina-Japan-South Korea free-trade zone and Regional Comprehensive Economic Partnership may speed up.

Positive scenario (Probability: 10%*) Growth acceleration

• GDP growth accelerates above 6.5% in 2019 on a reduction in trade tensions and a global cyclical growth upswing. Aggregatedebt-to-GDP ratio stabilizes. The annual current account surplus increases over USD 100bn.

Negative scenario (Probability: 10%*) Escalating China-US trade tensions

• The US makes good on its threats to impose investment restrictions and tariffs on most Chinese products, introducing asweeping tariff of 25% on the remaining USD 300bn of Chinese imports before 2020.

• In 2019, China experiences a sharp slowdown in growth (6% real GDP growth for two quarters) and a faster deterioration of itscurrent account into an annual deficit.

• The CNY slides to 7.5 per USD or weaker within a quarter as FX reserves fall dramatically and capital controls tighten up.

* Scenario probabilities are based on qualitative assessments.

Key datesJul 31Aug 9Aug 14

July manufacturing and nonmanufacturing PMIJuly inflationJuly fixed-asset investment, retail sales, industrial production

2Q GDP moderated on consumption and netexportsContribution to quarterly GDP growth, % y/y ytd

(1.5)

(0.5)

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

6.1

6.3

6.5

6.7

6.9

7.1

7.3

7.5

7.7

7.9

8.1

1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Final consumption (% y/y, ytd, RHS) Gross capital formation (% y/y, ytd, RHS)

Net exports (% y/y, ytd, RHS) Quarterly real GDP(% y/y, LHS)

Source: CEIC, UBS, as of July 2019

The central bank has leveraged multiple tools tokeep liquidity relatively ampleNet liquidity injections by PBoC, CNY billion

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

OMO (CNY bn) Lending facilities (CNY bn)

RRR cut (CNY bn) Chg in PBoC FX assets (CNY bn)

Source: CEIC, UBS, as of July 2019

13

For further information please contact CIO Swiss economists Alessandro Bee, alessandro.bee@ubs.com or Sibille Duss, sibille.duss@ubs.com.

Swiss economy - Global uncertainty weighs on growthKey points• After a slowdown in the second half of 2018, Swiss GDP grew 0.6% q/q in 1Q19. We expect growth of 1.3% for the full year.• Despite the robust growth, we remain cautious on Switzerland's economic outlook given the escalation in US-China trade tensions

and ongoing political uncertainties. These risks could delay the global economic recovery and weigh on Swiss exports.• Given these risks, we don't expect the Swiss National Bank (SNB) to start hiking rates anytime soon.

CIO view (Probability: 60%*) Recovery expected later in the year• Swiss GDP grew in the first quarter by 1.4% y/y, slightly below the long-term average. All components contributed to this robust

result. In addition, GDP growth for 2H18 was revised slightly higher.

• Despite the robust growth, we remain cautious on Switzerland's economic outlook given the escalation in US-China tradetensions and ongoing political uncertainties. These risks could delay the global economic recovery and weigh on Swiss exports.We expect the Swiss economy to grow 1.3% this year. In the coming quarters, we expect stable Swiss growth slightly below thelong-term trend. For 2020, we forecast growth of 1.6%.

• But the picture is mixed. In June, the manufacturing purchasing managers’ index decreased slightly to 47.7 points, the thirdmonth in a row below the 50 mark. This indicates weak growth in the manufacturing sector for the coming quarters.

• Alongside these are factors benefiting the Swiss economy. The labor market has recovered noticeably and can be a key driver ofprivate consumption.

• The moderate growth in the Swiss economy, and a franc that today is stronger than in 2018, will have a dampening effect oninflation this year. We expect consumer prices to grow 0.6%, after last year's 0.9%.

• In an environment of global uncertainty and a subdued economic picture, the SNB is unlikely to hike interest rates anytime soon.However, as the ECB makes its monetary policy more expansionary, even an SNB rate cut is a possibility.

Positive scenario (Probability: 15%*) Eurozone consumer strength supports Swiss growth

• A further drop in Eurozone unemployment leads to a rebound in Europe and shores up domestic demand, which in turn supportsSwiss exports.

Negative scenario (Probability: 25%*) Trade disruption hurts Swiss growth

• More protectionist measures by the Trump administration (especially against European car manufacturers) lead to a global downturn,which would hurt Swiss exports.

* Scenario probabilities are based on qualitative assessment.

Key datesAug 1Aug 2Aug 5Aug 9

PMI manufacturing for JulyCPI for JulySeco Consumer ConfidenceUnemployment rate for July

Business sentiment clouds overSwiss Purchasing Manager Index of the manufacturingsector and GDP growth year over year, in %

Source: Macrobond, UBS, as of 11 July 2019

Swiss employment growth still holding upEmployment growth in the manufacturing and servicesector, in %

-5

-4

-3

-2

-1

0

1

2

3

4

5

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Total Manufacturing Services

Source: Macrobond, UBS, as of 11 July 2019

14

Contact List Global Chief Investment Officer GWM

Mark Haefelemark.haefele@ubs.com

UBS CIO GWM Global Investment Office

Global Asset AllocationAndreas Koesterandreas.koester@ubs.com

Global Asset AllocationMark Andersenmark.andersen@ubs.com

Investment ThemesPhilippe G. Müllerphilippe-g.mueller@ubs.com

UHNWSimon Smilessimon.smiles@ubs.com

UBS CIO GWM Regional Chief Investment Offices

USMike Ryanmike.ryan@ubs.com

APACMin Lan Tanmin-lan.tan@ubs.com

EMEAThemis Themistocleousthemis.themistocleous@ubs.com

SwitzerlandDaniel Kaltdaniel.kalt@ubs.com

Emerging MarketsJorge Mariscaljorge.mariscal@ubs.com

15

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UAE: UBS is not licensed in the UAE by the Central Bank of UAE or by the Securities & Commodities Authority. The UBS AG Dubai Branch is licensedin the DIFC by the Dubai Financial Services Authority as an authorised firm. UK: This document is issued by UBS Wealth Management, a division of UBS AG which is authorised and regulated by the Financial Market Supervisory Authority in Switzerland. In the United Kingdom,UBS AG is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of regulation by the Prudential Regulation Authority are availablefrom us on request. A member of the London Stock Exchange. This publication is distributed to retail clients of UBS Wealth Management.

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