Usually the summer months tend to be quiet on the financial markets, however this year things are going to be a whole lot different. The big elephant in the room at the moment is Greece, nobody’s quite sure if they will strike a deal with the ECB and meet their debt deadline or if we might see the can kicked down the road even further. The real loser in all of this is the Eurozone bond market as it continues to fall (-3.5%) last week alone, not helped by Mr Draghi’s comments that ‘We should get used to periods of higher volatility’. If this plays out traders may not get any summer holidays this year.

The good news is that it’s not all doom and gloom in Europe eventually we have credible policy reform in France and Italy, this should help to improve trading conditions amongst member states. There is no worry of interest rates going anywhere in the EU as we all expect to experience a low interest rate environment for an extended period of time. With QE well underway in the Eurozone, we should see the member state economies improve however this will only occur if banks ease credit standards over time allowing liquidity flow.

The UK has been characterised by its excessive growth and positive economic data over the last couple of years but they have reached a slight crossroad. The UK is now faced with an element of political risk off the back of the conservatives success in the recent UK elections. This result has made a referendum very likely in the coming 12 months on Britain’s European Union membership. When a nation is faced with such uncertainty we usually see a reduction in foreign investment until a definitive decision is reached, which may prompt an earlier referendum.

Over in the US we don’t have to much to report, the Fed is expected to withdraw some of their policy accommodation with rate rises on the horizon. Consensus timeline for a Fed Funds rate hike moved from June out to late 2015.

 

-Terry