My name is Tim Hill. I'm Executive Managing Director and head of the U.S. and European client group and your host today. I'm joined, as usual, by our speaker, Seema Shah, Chief Global Strategist at Principal Asset Management.

Navigating the final stretch of 2025 against a backdrop of elevated uncertainty and potential global friction will be demanding for investors. It presents plenty of obstacles as well as opportunities. Seema is here today to share insights on key themes shaping global markets and how investors can prepare portfolios.

As a reminder, as usual, if you have questions, submit them through the Q&A window on your screen. We will answer as many of those as we can after Seema's formal comments. And with that, I'll turn it over to you, Seema.

Great. Thank you, Tim. Thanks, everyone, for joining. OK, there's always a lot to talk about. It seems like even more so this quarter. So this quarter, we've named our global market perspectives "Against all odds." I think it's an apt way of describing the general backdrop, both for markets and economy. If you remember back to Liberation Day, or just after, concerns around recession, concerns around a market correction. And look where we are today, where I think the S&P 500 is up some 35% since Liberation Day, and the global economy is doing pretty much just fine.

So let's get into key themes. So as I just said, global economic growth has been very resilient despite the U.S. trade policy shocks. Those headlines are continuing, as we've seen in the last couple days. And I will talk a little bit about those.

U.S. recession fears-- I think they've been pretty much dismissed. There's still some lingering concerns, of course, rightfully so. But, ultimately, strong consumers-- very, very strong AI CapEx spend has enabled the U.S. recovery to stay pretty robust.

From the Fed's perspective, they've also been adding a little bit of juice to the market. They don't really need to cut policy rates very, very aggressively. They don't need to take them below neutral. But, certainly, the bit of stimulus that they'll be providing over the next 12-18 months is going to be very helpful, and particularly so for risk markets. So for equity markets, they are very, very strong. But we still think that they've got further upside to go given that strong fundamental backdrop.

For credit-- also, very expensive credit spreads are extremely tight. But we're not here for the spreads. We're here for the income. And those robust macro tailwinds make U.S. feel a little bit more confident about going down the risk spectrum to some areas such as high yield and emerging market debt.

And then, putting this all together, the backdrop with markets being very, very rich right now, to our minds, this is really the time for balance and diversification, trying to think across all of the different areas of the asset classes to figure out where the value opportunities are and where are the best places to stay pretty safe in this kind of time where, as I said, valuations are so expensive.

OK, let's go through to the first slide. So thinking about the global backdrop, as I said, right after Liberation Day, there were real concerns about recession forecasts, fears of market correction. And yet, when you think back now, since Liberation Day, actually U.S. forecasts have been upgraded, and they have been for 2025 across the globe. So the chart on the left shows you how economic forecasts have moved. So consensus market economic forecasts have moved since Liberation Day.

You can see, for the U.S., they've been revised up by 0.4% for both '25 and 2026. Now, that is not a full correction of the initial downgrade. Right at the beginning of the year, the U.S. is expected to grow by 2.2% That was before tariffs were announced. By the time Liberation Day had come around, growth forecasts were seeing growth of about 1.2%, 1.1% for this year. So it's come back up to around the 1 and 1/2%, 1.6% level. So it's not right back up to that 2.2%. But it is a good recovery from where forecasts were.

And that's also the case for Europe and China. So we have seen that growth forecasts around the world have been upwardly revised. How has this happened? Well, policy volatility has eased. You've seen that uncertainty has receded with regards to the policy decisions, and that has enabled-- permitted businesses to start moving forward with their CapEx plans.

And then, finally-- and I know this is a point of consideration today. But, really, tariff policy, in general, has been less punitive than expected. And so I think those things together have enabled the U.S. economy and the global economy alike to be pretty solid.

Now, before I go into further depth about the U.S. economy, it is worth pointing out that, although things are OK today and we do think the 2026 is going to be a decent year as well, the global economy hasn't-- it hasn't completely emerged unscathed. There will be some scars. I'm going to talk through most of these during the call. But very briefly, the first thing to point out is that tariffs, they're very likely here to stay. They're reshaping global dynamics. And unfortunately, what that does imply is that we're likely to see inflation staying a little bit elevated and a bit sticky.

At the same time-- and this is something we've already seen come through very drastically-- is that those lingering concerns around U.S. institutional stability, geopolitical posturing, the general credibility of the U.S. have probably structurally weakened the U.S. dollar and also strengthened gold. And these two factors, inflation and a weaker dollar, they are compounded-- or compounding, I should say-- rising global fiscal concerns that have already been underway. You can see that from the chart on your right, where we've seen long-end yields rise pretty much continuously over the last three or four years. But, actually, it's become a little bit more exacerbated.

So they're threatening to raise long-term borrowing costs. That's going to be limiting the scope of future fiscal policy stimulus and then also potentially undermining the effectiveness of monetary policy going forward. So these are things that we need to keep an eye on. But certainly over the next 18 months or so, we do feel quite constructive about the global outlook.

OK, let's get into the U.S.. Now, since Liberation Day, I think the hard data set-- that's the economic activity data, as much as we have right now-- has stayed pretty good. Consumer spending, very robust, as you can see, industrial production very robust. And actually, CapEx has been pretty good, too. I mean, actually, it's been a key driver, significant growth engine for growth for the U.S. economy.

And actually, when we look at the numbers, technology investment alone is estimated to have contributed roughly a third of real GDP growth in the first half of this year, which is very, very significant. If you look over to the soft data, not quite as strong. So we have seen sentiment across households and businesses pick up, but it's not as strong, maybe, as it was at the beginning of this year or certainly at the end of last year.

Now, it's also worth pointing out at this stage that, look, economic activity, consumer spending, AI CapEx spend, has been very robust. But that isn't the whole picture. There are some elements of the economy which are looking fairly weak. And that, I think, is quite clear the chart on your right there. So activity good, but the labor market has been somewhat disappointing. And you can see that from those two lines, which have very significantly diverged over the last six or seven months or so.

So there's something going on here. We need to really understand what is happening with the labor market in order to understand exactly where the U.S. economy is going, because, of course, the labor market, I think, is something which holds everything together with regards to consumer spending, CapEx spend, et cetera.

So what is happening? Well, I think, as we move to the next chart, what we should be seeing is that on the left-hand side, over the last couple of months, nonfarm payrolls growth has been trending lower. And in fact, the three-month moving average is now sitting at about 29,000.

So to put that into context, pre-COVID a number of around 150,000 or above would have been consistent with a solid economy. Something around 100,000 level or just below would have been consistent with a slowing economy. And anything sub-50,000, well, then we would have been concerned that we're heading towards recession.

So in that kind of area, 29,000 level on monthly payrolls growth should really be associated with recession, and it should be corroborated, in that case, by other economic indicators also sitting in recessionary territory. But as I've just shown you in the previous slide, other economic indicators are pretty robust. On top of that, when you look across labor market data, jobless claims have stayed quite subdued, certainly below recession levels. And most importantly, the unemployment rate, as you can see on the chart on the left, has risen, but only marginally.

So what is going on? Well, the first thing to say is, look, I'm not dismissing labor market slowdown. I do think there is a cooling underway. I just don't think it's in recessionary territory. And the reason is that we think weaker job growth is mainly or at least partially down to reduced labor supply. And that's stemming from the U.S. administration's tighter immigration policies.

If you have fewer people entering the labor force, well, then there's fewer jobs that need to be created. And I think that's what's going on. So the reduced hiring, it doesn't necessarily reflect a recessionary economy. It reflects a slowing economy, which it's not ideal. You've got low hirings. You've got low firings. But, certainly, it's one that can continue to grow.

The other thing to keep in mind is that, as well as labor supply, staying low and subduing that nonfarm payroll growth going forward, we should also be prepared that, at some point in the future, the rising adoption of AI could actually further dampen labor market demand at the same time as boosting productivity. So that's something that we need to keep an eye out for. It's probably not present right now, but it may well be an important theme as we look forward to the next couple of years.

How long can this kind of low hiring, low firing environment stay stable for? Well, I think it really comes down to company earnings. If earnings are OK, well, then companies' margins are OK and in which case they don't really need to think about cutting headcount. At the moment, looking-- we're about to start earnings season. We've just started earnings season. If that outlook stays positive, then the likelihood of widespread layoffs is going to stay quite low.

Now, one of the other factors that I think should support company earnings through Q4, and certainly in 2026, is going to be policy stimulus. And I don't think it's fully appreciated by the market the magnitude of the help that's going to provide to the economy. And I'm not just talking about Fed policy. I'm going to come to that in a bit. I'm talking about government policy.

Now, if you remember at the start of the year, one of the key disappointments was that Trump didn't announce deregulation as one of his first acts. He didn't do that. He didn't do anything to shore up the economy before he announced tariffs. Well, what I think is that this year was all about eating your vegetables, getting all the hard stuff out of the way. Next year is going to be when the US economy can really start thinking about having its dessert.

So let me go back a bit. Let's talk about vegetables-- so the import tariffs. Now, from our perspective-- this is the chart on your right. The effective tariff rate is sitting at around the 12-13% level right now. They are likely to move higher. Why would they do that? Well, simply, we think that tariffs are a negotiating tool. We think that tariffs are going to be more and more focused on sectors, companies. There's still some sectors to still be announced, as well. So we do think that tariffs will move higher.

The tariffs, as well, on U.S.-China, they could certainly rise. So, actually, let me deal with that first. Now, we've seen that the U.S. administration is threatening a 100% increase in tariffs on China. That would put-- from our estimations, it would put the average effective tariff rate back almost to around 30%. Now, keeping in mind that at the beginning of the year the average effective tariff rate was sitting at about 2%. It rose to about 28% post-Liberation Day around the 90-day reprieve. And that was when most of the U.S. forecast recessions had come out. It's really about that very, very elevated China tariff.

When the U.S. and China announced its truce, that's when the average effective tariff rate came back down to around the 12% level. And that's when the U.S. forecast for recession disappeared. So clearly, if the 100 or the 100% increase in the import tariffs on China were to go ahead, well, we could be looking at a considerably more negative economic picture for the U.S., both in terms of growth and in terms of inflation and, of course, with some negativity or at least negative impact on China too.

But, actually, the severity of the risks, to our minds, probably means that there will be some kind of negotiation, some kind of compromise somewhere down the line. It may not come very quickly, and I would certainly expect there to be a lot of noise in the coming weeks or months. But ultimately, we do expect the U.S. and China to come to some kind of agreement where tariffs may be a little bit higher than they are today, but at least not going back to that kind of above 100% level that we saw earlier this year.

So overall, assuming that the U.S. and China do come to some kind of agreement, what we would expect is that tariffs do subtract from U.S. growth over the next couple of quarters, but not drastically so. And that's shown to you in the chart on your left, which shows the contribution to GDP of both tariffs and the tax bill. So the light blue bars are showing the impact of tariffs. And clearly, that is taking away from U.S. growth. But it's not taking away so much, at this point in time, to be consistent with recession.

So that's the vegetables. Now on to dessert. Well, to me, the passage of the one big, beautiful bill, which cuts taxes for most businesses and consumers, they actually meaningfully offset the contractionary effects of tariffs. If you think about personal income tax, there's going to be refunds coming through in around Q1 that should boost demand. Keep in mind, a lot of it is going to be focused on higher income households. It's going to be fairly front loaded. It's going to be very short lived. But overall, that should boost consumer spending.

And it's not that just households that are going to be benefiting. It's also businesses. Generous tax breaks for capital expenditure and R&D spending, together with an expansion of business interest deductions to our minds, well, that could even result in a drop in the effective corporate tax rate from the current 21% to somewhere between 15% to 18%. So there is some meaningful good news coming through, both for households and for businesses.

And so, as you can see on the chart on your left-- that's your darker blue bars-- the one big, beautiful bill, through early 2026, does give a very nice positive boost. And it pretty much offsets tariffs. Keep in mind, too, that if the one big, beautiful bill does result in some kind of invigorating of corporate CapEx, then you could see some significant multiplier effects for the broader economy, in which case tariffs, the impact of tariffs, would be completely offset, and we would be looking at a situation where government policy would be all-out stimulative for U.S. growth.

Let me talk about U.S. balance sheets before I start to think about inflation, because this has been really key, that when we're thinking about the resilience of the U.S. economy this year and through into 2026, a lot of it is down to the strength of both household and corporate balance sheets. Now, in 20-- I should say, since the pandemic, household net worth has surged by around 70 trillion. That is a huge number. And it really helps to reduce leverage.

So what we've seen is that corporate credit has increased. Debt has really increased. But when you put it as a percentage of net worth, well, actually, it's quite minimal. So the chart on your left is showing you consumer delinquencies. There has been a pickup in recent months. But when you put it as a percentage of disposable income, it's not a very, very worrying levels. Actually, debt service ratios stay quite low.

Most of the rise in the past six months or so is really down to student loans, because the holiday came to an end. We are seeing some strain maybe picking up, but there's no major financial systemic risks that we need to be watching out for, certainly nothing like the GFC.

And it's a similar picture on the corporate side. Leverage is contained. Cash is a share of liabilities. It continues to increase. And that provides a good cushion against any kind of cash flow or revenue pressure. And then, as the chart on your right shows you, profit margins are at cycle highs. As long as that's the case and firms can deal with the headwinds that tariffs are presenting, they can absorb those tariffs into their margins without having to resort to layoffs or passing on the cost increases to households.

So this picture does give us a lot of reassurance that there may well be further headwinds. There may be further increases in tariffs. But we do think that households and corporates are really, really well positioned to deal with the headwinds that may be coming.

I mentioned about the pass-through to inflation, so let's talk about that. Now, we have seen that so far this year tariffs have pushed inflation up slightly higher. So the chart on your left, you almost have to squint to see it. But core commodities and transportation commodities, they were a very, very important positive contributor to inflation around COVID and just after COVID. So that's kind of your yellow and teal bars. And then they pretty much disappeared. As they disappeared, inflation came down.

Now, if you squint really hard, you can see that in the last six months they have made a reappearance. That is tariffs. Now, the chart on your right shows you this kind of micro-level data comparing what's happened to import goods prices and domestic goods prices.

Now, you can see import prices have increased more than domestic goods prices. That is to be expected given tariffs. But the pass-through, the increase in imported goods prices, is way less than what had been feared. At one point, there were concerns that U.S. CPI would go above the 4% level, maybe approaching towards 5%. Now, inflation has increased, but it's only hovering around the 3% level. We can deal with that.

Now, it's worth keeping in mind that this is still really, really early days. Consider that tariffs only really were implemented in August. So companies at the moment are absorbing it in their margins. We still need to see how they deal with it next year. As I said in the previous slides, I do think that companies in the general macro backdrop suggest that companies can continue to absorb these price increases within their margins without too much trouble, but it is something that we need to keep an eye on certainly this earnings season. I think, to me, it's the key thing that we need to be watching out for.

From the Fed's perspective, they will be looking out to see, is this increase in tariffs not just staying contained to core goods, but is it spilling over to core services? If it spills over to core services, well, then it's becoming something which is more ingrained in the economy. And then we would expect inflation expectations to also increase. So it means that, for the Fed, they cannot be entirely comfortable with inflation settling at 3%. They have to keep an eye on what's happening with the price increases. And it also implies that they have to adopt quite a cautious approach to easing policy.

So what do we think is going to happen with the Fed? Well, they've already started their rate cuts. We saw one in September. That's probably-- or I should say it's not-- it's clearly because they're responding to labor market weakness. They're acting preemptively to prevent a further labor market deterioration.

As I said before, I think growth is quite robust. But labor market is slowing. And I showed that to you. So it does make sense for the Fed to try and get ahead of the situation and try and bring rates closer towards neutral. We're expecting that, by the end of this year, the Fed will have cut three times, so three 25 basis point cuts, so 75 basis points in total in 2025.

At that point, Fed rates will be closer to neutral. And then from my perspective, well, I think it makes sense for the Fed to pause and evaluate the situation. How bad is the labor market? Has it responded to rate cuts yet?

They'll also have to keep an eye on inflation. So this is something about insurance cuts. It's not really recessionary action where they have to really slam down the brakes and bring in consecutive rate cuts, which go on over 10 months or a year or so. So we do think that after the three cuts of 2025, 2026, could see a couple more cuts if it's really needed and if inflation is tame. But overall, this is not a very, very drastic cutting cycle.

Now, one caveat to this, which is that we do know that President Trump has a preference for a more dovish FOMC. We also know that Powell's term as chair of the FOMC is coming to an end in May. There's going to be a lot of moving of tables, moving of seats within the FOMC. And you could see a slightly more dovish makeup of the Fed. So as a result, it is possible that the rate decisions in 2026 may actually skew a little bit dovish, even if the macro backdrop doesn't warrant it. So you could end up with more than just two cuts next year, particularly if you have a more dovish makeup of the Fed where President Trump is really providing some pressure.

So that's the U.S.. And I think I've hopefully built up a picture of a U.S. economy which is robust. It's slowing particularly in the labor market. But at least we have stimulus coming through from both the Fed and from the government, which should help reshore-- shore up consumer earnings or company earnings and ensure that households stay pretty strong.

So let's turn our attention to the global picture now. Now, again, going back to Liberation Day, the introduction of the U.S. import tariffs was expected to weigh heavily, not just on the U.S., but certainly on the rest of the world. But just like the U.S., growth globally has held up pretty well.

If you think about the European economy, resilience was surprising in Q1 and Q2. I think it was boosted by confidence around the German fiscal stimulus deal and, actually, the fact that the tariffs that were eventually implemented were not as severe as they had been feared. Now, Q3 data so far for Europe, it does suggest a bit of a slowdown in activity. But, again, it's not as severe as expected.

And for 2026, because German fiscal stimulus is likely to really hit its stride and because the European economy should be feeding the benefits of past ECB rate cuts, well, then, actually, we do think that growth in Europe should be fairly solid in 2026. Now, the result of that is that the ECB, which has already been cutting rates fairly-- kind of consecutive rate cuts over the last 10 months or so-- they've come to a pause. The likelihood is that they are at or at least near the end of their rate cutting cycle. And keep in mind, they're coming to an end just as the Fed is getting theirs going.

If you think about the UK, well, that is a bit of a different picture. They have weakness. It's not cyclical necessarily. It's not really driven by trade tariffs or anything like that. It's down to more structural issues, I guess, more concerning issues. Those structural issues are keeping inflation sticky, and they are keeping the Bank of England on the sidelines for the time being. It has a fiscal balance problem, which needs to be watched very carefully. But at least from our perspective, at some point in the near future, the Bank of England will have to resume rate cuts just because the economic picture is deteriorating.

But, overall, they've also done a number of rate cuts, and there's probably not that much further to go for them. Japan, I think, has been on a more robust path than we had been initially expecting, I think. We've had rising healthy inflation, economic instability-- stability, not instability. And to our minds, that means that another rate hike is in the near future. There have been some political changes, which may delay that decision, but certainly we do think that the Bank of Japan will be looking to hike rates in the near future, either later this month or maybe in January.

Now, China-- well, China has been very, very much in the spotlight at the moment. I've just talked about the tariffs that the U.S. is threatening. It's interesting because China's macro picture is actually quite mixed. They have ongoing property market weakness. They have youth joblessness, which is very, very high. Consumer spending is still very weak.

And yet you have seen the Chinese equity markets actually perform pretty well this year. And the main reason is that there has been optimism building up around the government's anti-inflation push. Now, that campaign is really aimed at trying to stimulate consumer spending and trying to counter deflation. So they're having a bit of success, not that much. But there is high hopes that it will continue.

And in fact, despite U.S. import tariffs, actually, China's export growth has surprised to the upside. So they have almost defied some of the concerns that have been enforced on China once U.S. tariffs were announced.

Before I come back into just focusing a little bit more on China, just as a general theme, you can see that for most of the major economies, the general direction for theirs, except for the UK, is that they're all doing a little bit better than expected. Their central banks have done a lot of easing. They're probably nearing the end of their easing. And again, that contrasts very clearly with the Fed, which is just getting going on resuming their Fed cutting path. So there's a divergence between central banks.

Now, just coming back to China for the moment, as we're thinking about the trade tensions and why do we think that there's going to be some negotiation, well, from the U.S. perspective, as I showed you before, the U.S. really does stand to lose a lot, from an economic perspective, if it were to go ahead with this 100% increase in tariffs. China also stands to lose a lot, too. Now, they do have the dominant position in most rare earth metals, which gives them a bit of an upper hand, maybe. But China is also dependent on the U.S. for chipmaking equipment.

And importantly, although export growth has surprised to the upside, its economy, given the weaknesses in the property market, weakness in consumer spending, they really cannot afford a trade war. So exports remain key for China. The U.S. is the world's largest consumer. So it's also in China's interest that at some point down the road that they do come to some kind of compromise with the U.S..

And needless to say, if we're wrong here and let's say that the China trade war does restart, we see this introduction of tariffs, it kind of escalates, well, then the economic picture will be very, very different from the one that I'm playing out. But we do have some confidence that that worst-case scenario is not going to play out.

My last slide before I turn to markets is just on the dollar. Now, I've just shown you that there has been a divergence-- there is a growing divergence between central bank policy. Now, so far this year, the U.S. dollar has suffered the most from the impact of policy uncertainty, tariff concerns, kind of concerns around U.S. recession.

From here, that diverging global monetary path probably suggests that there is some further U.S. dollar downside. I don't think it's going to be very, very significant because the concerns around the reliability of U.S. institutions, probably the worst of it, is behind us. But there is still some concerns. If you think about May next year when Chair Powell's term comes to an end and there may be some growing concerns at that point about Fed independence again, well, that could further weaken the dollar.

And from that perspective as well, we could see gold continuing to perform well. If you keep in mind that typically when it comes to gold, gold does well when equity markets are doing badly. So far this year, equity markets have done really well and gold has done really well. So that, to me, is telling U.S. that investors are looking at gold as a hedge maybe against inflation, but also a hedge against U.S. policy uncertainty. So if we were to see a resurgence in concerns around Fed independence, a resurgence in concerns around just general U.S. institutional credibility, well, then I think gold can continue to do fairly well.

I also want to make sure that we don't exaggerate the U.S. dollar's demise. It still is the world's reserve currency. It has unmatched depth and liquidity when you think about U.S. capital markets. But we are seeing that its share of global reserves is continuing to erode amid those rising institutional pressures. So cyclical and structural factors, they suggest further weakness in the U.S. dollar is possible, but we are not expecting the complete demise because it is the reserve currency of the world.

All right, let me talk about risk assets now. U.S. equities-- well, look, again, I've said this so many times already. Around Liberation Day, major concerns about what was going to happen to U.S. equities. They have done really, really well. They're up some 35% from an S&P 500 perspective since Liberation Day.

And that has been buoyed, I think, by a surge in AI CapEx spending and, of course, by that general robust economic picture that I've laid out for you in the last couple of slides. It is worth saying that there are concerns around that tech bubble. And in fact, those concerns do continue to grow. Now, from my perspective, that makes sense. Some of those Cap-- I mean, those CapEx numbers are like 13 digits. That's a monstrous number. And it makes sense to have some kind of skepticism when you're looking at numbers of that kind of magnitude.

But when we're looking deep into the AI theme, into the hyperscalers, there are some things that are giving us some reassurance about the sustainability of the AI theme and therefore the sustainability of the U.S. equity market rally. The first thing is that demand is completely outstripping supply still. AI service provider revenues are continuing to grow fast. Leverage is a fraction of what it was during the dotcom bubble. It doesn't even compare. And if you think about operating costs, well, they're still very much outpaced by revenue growth.

So, of course, look, there are some rightful concerns. There's going to be some pockets where there will be disappointment. So we don't want to pile into all tech. You still have to have a selective approach. But when we're thinking about the AI theme, we do have some confidence that it can continue, potentially with some hiccups, but it will be sustained. And as long as that is sustained, well, then, look, we're really setting the U.S. equity market in good stead.

Interestingly, though, although tech has been the story of the last couple of quarters, it is not the only story. And we have seen other cyclical areas of the market join into the rally. Think about small caps. Well, the Russell 2000, for example, has actually outpaced the S&P 500 since Liberation Day. Financials-- doing extremely well. If anyone has seen the bank earnings results of today, JPMorgan, Morgan Stanley, Goldman Sachs, all doing really, really well.

So this, to our mind, suggests that you're seeing this broadening out. And it really does reflect this quite positive outlook for the U.S. economy. And if you look at the chart on your left, which shows you that, look, as long as earnings are doing well, so as long as the backdrop of the economy is strong and earnings are doing well, well, then we should expect equities to continue to gain.

The other part of the story which is going to be very, very important going forward is the Fed. Now, historically, as you can see on the chart on your right-hand side, equities perform well in the two years following the start of a non-recessionary easing cycle. So what I mean by that is we have divided up Fed easing cycles historically by, do they happen against the backdrop of recession, or do they happen against the backdrop of continued growth?

And of course, if the Fed is cutting and you still have recession, well, the equity market does struggle initially. If the Fed is cutting against a backdrop of solid growth, well, then the equity market performs really, really well. And as I've said to you, the general picture that we have of the U.S. economy and actually the global economy is one of continued economic growth, a little bit slower, but still economic growth. And so with that in mind, to our minds, the Fed is likely to give a little bit more juice to the equity market rally. And it should continue.

OK, let me talk about global valuations. Hopefully the global valuation picture that you have in front of you is quite familiar to everyone. Focus on the colored boxes. If they are red, it means that market is very expensive relative to its own history. If it's green-- there's not much of it. But if it's green, it means it's cheap relative to its own history.

Now, there's not-- as I said, there's not many opportunities out there right now from a valuation perspective. Keep in mind that just because the market is expensive, it doesn't mean that it's due a pullback. What it means is that there are vulnerabilities building up within the system, and any kind of negative shock could trigger a little bit of a pullback.

So for the U.S. market, it has actually never been more expensive than it is today. So that may be cause for a sharp intake of breath. But keep in mind that, as long as fundamentals stay strong, well, actually, these markets can just continue to grow more and more expensive. But, of course, it makes sense to try and look for the value.

So we can see here, if you look at small cap, small cap is one of the few areas, certainly the only area within the U.S. market, which is actually looking fairly valued. There's a big valuation gap between small cap and large cap, and for small cap for it to do well, it needs a backdrop of solid domestic economic growth, and it needs rate cuts. And lo and behold, that is exactly what we're getting. So from our perspective, considering the valuation differential plus that fundamental positivity, well, we do think that small caps can perform pretty well over the coming quarters.

If you look across to the rest of the world, because it's still going to be important to have some kind of diversification, given the inherent risks that exist-- if you look across to Asia, it's not cheap, but it is cheaper than the U.S.. We've talked a little bit about China. Assuming that the tariffs don't go ahead, the involution campaign by the government there should imply continued gains for the Chinese equity market.

Asian markets, in general, which are exposed to the tech theme, also stand to gain. If you look at India, as well, that is standing pretty well. A lot of continued reforms happening, a stronger growth picture as well. So there are opportunities out there, even if almost nothing is looking very, very cheap.

Just one word on Europe. I've talked about it a lot already. Now, the valuation gap that did exist at the beginning of the year has almost-- I mean, between Europe and the U.S.-- has almost closed up. So Europe really does need some kind of catalyst in order to improve its fundamentals to almost entice investors back to that European trade. I think you could get it. If the German fiscal stimulus really does come through next year, focusing on infrastructure, defense, maybe some feeding through to consumers, well, then we could see this pickup in growth, and then that could provide that extra leg for the European market. So, clearly, still something to watch.

Let's talk about fixed income now. Now, the bond market this year, I think, has faced a ton of very complex factors. You've actually seen 10-year treasuries fluctuate, 4.86, I think, at the beginning of the year. And currently, it's hovering just above 4%.

Now, it did a nice leg lower towards that 4% level as soon as the Fed cuts started to be priced in. But it's interesting to see-- and hopefully you can see it on the chart on your left-- that actually underlying risk premiums have continued to rise, even as U.S. Treasury yields have come down. So what is that telling us? It's telling us that there is some kind of unease going on within the Treasury market.

Some of it is down to just supply, kind of the issuance. But also-- and I think most importantly-- there are concerns around the U.S.'s fiscal unsustainability. Now, we don't think that this is something which is a panic moment. It's not something which is really going to confront the market today. But, clearly, investors are looking at the U.S. and actually looking across all countries, and you can see that from the chart on your right. And fiscal concerns are completely top of mind.

It's actually one of the reasons why the tariff revenue for this year is going to be really important, because at least it offsets some of the concerns around a growing debt load in the U.S.. Why does it matter? Well, the simple fact is that if fiscal concerns continue to grow, if the U.S. government doesn't take a hold of the situation, then what would happen is that your long-end yields, so your 30-year U.S. Treasury yields, would have upward pressure. And so the effectiveness of monetary policy simply would not translate. So even if the Fed is cutting rates, you may not see Treasury yields coming down that much and providing that kind of boost to the economy via financial conditions.

So it's something to watch. I don't think it's a panic moment, but it's something that we do need to watch. And to our minds, it implies that we're unlikely to see a significant move lower in yields, despite Fed cutting cycle. And as I said, this is a global theme. You can see the chart on your right, that there's been a steepening yield curves, not just in the U.S., but in the UK, in Japan, Germany. If you look across to France, it's the same thing. People around the world are all watching fiscal concerns. And there are some real worries starting to grow.

But let's talk about corporate credit, which is a slightly more positive picture. Now, corporate credit has done really, really well against this backdrop of this robust macro backdrop-- constructive environment. And as a result, spreads have retightened to multiyear historical lows. Now, that is great. The bad news is that investors probably shouldn't expect to see further spread compression from here.

But the thing is that investors, we are all there for the income. That's what fixed income is doing. Right now, as you can see from the chart on your right, yields are elevated compared to the previous couple of years. And as long as yields are elevated, well, then that does suggest that income returns are going to remain attractive.

When we look across fixed income, investment grade does look favorable. It's got strong balance sheets, as I've showed out there. And importantly, if you have got concerns about the economy, if you're still worried about the tariffs and the impact it could have, well, look, investment grade credit, that high quality part of the market is going to be a great way of protecting against the downside. And it certainly does make sense, given that there are some risks out there.

I should say, though, that the constructive economic backdrop, to our minds, does suggest that investors can start going down the risk spectrum thinking about high yield, emerging market debt. Importantly, for emerging market debt, it does well when there's a soft dollar and there's rate cuts and global growth is OK. So that is a situation we have and is one of the reasons that we have been seeing this increase in exposure to both high-yield and emerging market debt.

My final slide before we turn to questions. Now, I think I said it last time. I really don't like this table typically. It's a mess. There's too many colors going on. What on Earth are we looking at? But, actually, I think that is the story.

If you just look at the performance for 2025, who would have expected that emerging market debt would be the best performer to date? [? EFA ?] doing incredibly well. And what this is telling us is that, at this point in time, especially when you consider that valuations both in equity markets and in credit is very, very stretched, it's really important that investors appreciate the importance of balance and diversification-- diversification across asset classes, diversification within asset classes as well. So active management is going to be really key.

Now, in the U.S., I've already talked about the theme of AI and why I think it's something which is going to be sustained. But at the same time, maybe investors want to be thinking about the second-order beneficiaries of AI. And what I mean by that is something like utilities and semiconductors. They really do offer compelling opportunities without showing the same kind of stretched valuations.

Think, also, about outside of tech. As I said before, financials-- look at the bank earnings, consumer discretionary health. These are all areas which should benefit from the one big, beautiful bill, as well as the constructive macro backdrop. Within the U.S., small caps, they are trading at historically attractive valuations. There's discounted entry points, and there's that greater sensitivity to domestic growth, innovation even, and rate cuts. So we do think there's opportunities there.

It's also worth looking outside of the U.S.. International equities is going to provide that diversification if you have concerns about that frothiness of U.S. equities. I've talked about emerging markets, Asian markets, where valuations are slightly more attractive. And they still are keyed into that structural narrative of AI adoption, digitalization, consumer growth. And Europe, as I said, if Germany's fiscal stimulus can really get into its stride next year, well, there does stand to be some continued gains there.

You don't want to forget fixed income. I sound very, very positive. That doesn't mean that core fixed income is something that should be ignored. It is increasingly relevant. And remember that when you have valuations this expensive and maybe if you have some continued concerns about global growth, core fixed income does provide some downside mitigation.

And then, as I said at the start, look beyond the traditional. Real estate, it does provide to be a very valuable diversifier. You can think about public REITs, where valuations are fairly cheap. They've been trading below asset values.

Private real estate is delivering stable cash flows and, of course, inflation mitigation. So think about sectors such as logistics, health care, data infrastructure, some of the areas which are still keyed into that very, very important theme of AI CapEx going forward. All right, I'm going to stop there. I'm going to hand it over to Tim, and hopefully we can turn to questions now. Thank you.

Sounds great. Thanks, Seema. Great job. Let's kick off with China. Both the Dow and the NASDAQ, off the start this morning, we're down over 500 points. Looks like much of that has been recovered. I guess, first a question is that volatility, just kind of like Friday, just part of the conversation. And then how much of this is political signaling versus genuine economic escalation? And what does it mean overall?

Yeah, I'm glad this question has come through. So I think when we're taking a step back and looking at the overall market, I think it's fair to say, there has been some complacency feeding in. As I said, we have a robust outlook for growth for next year. But that doesn't mean that there's risks in that outlook. And one of the interesting things is that, if you've been listening to anyone on the street, if you're listening to outlooks in the last couple of weeks or so, there's barely been any mention of tariffs.

And I think the Friday news with the U.S. threatening China with 100% increase in tariffs is a really, really timely reminder that tariffs are not behind us. They're still going to be there. We do believe there's going to be a negotiating tool going forward. Even if U.S. and China do come to some kind of compromise in the coming weeks, there probably isn't the end of the story. I would think that this is a topic which continues to rock markets through the rest of 2025 into 2026, into '27, probably beyond.