Each day provides its own gifts, Marcus Aurelius

Capital markets appear, at present at least, to be taking the increased possibility of a US rate hike in June in their stride. After a sluggish start on Monday and post some encouraging economic data from the euro zone, equities recovered well on Tuesday. The release of May’s flash Purchasing Managers surveys for France and Germany once again highlighted how well the German manufacturing base does out of the euro particularly compared to France. The index readings for German manufacturing, services and the composite of the two all came in ahead of expectations and comfortably above the 50 mark that differentiates between expansion and contraction. On Tuesday Economic growth in Germany was confirmed at 1.3% year on year for the first quarter. For France the manufacturing report was a reading of 48.3, below expectations, however services and the composite readings were above 50.

According to the Financial Times, Sentix released an investor survey showing sentiment towards German equities reaches a 13 week high. Studying the chart of the historical trend, the survey almost tracks the performance of underlying market one for one. Needless to say when positive sentiment reaches a peak as does the equity market and visa versa.

Brexit continues to dominate and sterling appeared to take comfort from opinion polls that suggest the remain camp is beginning to improve in the ratings. Several bookmakers are now shortening the odds even further to a remain vote. Mark Carney played a straight bat at the Treasury select committee meeting after the recent flack he took expressing his views on Brexit. Although it does seem reasonable that the Bank of England should feel free to comment on a decision that may impact the British economy, either way he was likely to hit trouble by doing so. If the Governor came out in favour of Brexit, he would be seen to be contradicting the current government position. By showing support to remain he risked being accused of unduly influenced by the incumbent government.

Greece will be back in the headlines in the coming days as Eurozone finance members along with representatives from the IMF and ECB meet to decide upon the next tranche of bailout funds. Having signed up to further austerity measures at the weekend the Greek government should receive 11bn euros, allowing them avoid defaulting on 3.5bn euros they owe to the ECB, payable in July! Assuming that is agreed then comes the ongoing debt relief discussions, where the IMF could well become more vocal. It does seem difficult to understand how Greece is ever going to find a way to pay back the money it owes without some debt relief agreement. 

Posted on May 25, 2016 .