What Happened last Week

Global equities (in euro terms) fell back as European equities lost all of the previous week’s gains. The Greek debt situation is now very much centre-stage. Euro currency weakness has significantly enhanced returns for eurozone investors in 2015, Equities continue to be supported by the expectation of reasonably strong corporate earnings’ growth and low interest rates. In addition, equities remain better value relative to other asset classes despite the rise in price earnings multiples.

Whats On The Cards This Week?

It is expected that the ECB will keep policy rates unchanged at 0.05% (Wednesday) with the Committee emphasising again its commitment to fully deliver on its asset purchase program. It is forecast that the final estimate of euro area Q1 GDP (Friday) to be confirmed at 0.4% quarter-on-quarter. In the US May employment report (Friday) it is projected that the non-farm payrolls rose by 223k (last: 223k) and that the unemployment rate fell to 5.3% (last: 5.4%).

Our Friends Across The Pond

Macro data remains the focus of US investors who seek clarity given the mixed economic data year to date and timing of Fed rate hikes. The S&P 500 Index recent advance towards new highs showed a broadening in participation across sectors, typically a bullish signal. However, trading volumes have been low and investor sentiment remains heavily neutral. Economic data remains mixed and is not painting a particularly robust picture of the US economy. The Fed remains dovish in their tone. Expectations are for a rate rise in late 2015 and a slow trajectory thereafter, with potentially a substantial period before a second rise is instigated.

Closer To Home

European Equity markets have taken a breather from their strong rally that peaked mid‐April and more recently made a lower high. The relative attractiveness of the market stems from ECB’s quantitative easing program (in its early stages) and fewer currency pressures, with the weak Euro working in favor of exporters in the region. We are delighted to see credible policy reform in France and Italy. Interest rates are expected to stay low for an extended period. If QE does stimulate growth in the region, this should see banks easing credit standards over time driving momentum in the growth. Political risk prevails in Europe.