May ended on a damp note, in theory on continued concerns with the euro. Despite the weak end to the month overall equity markets made modest gains in May building on the recovery in April. One should expect to go into June that the recent volatility may continue. Headlines may calm in Italy, however, the threat of an increase in trade war tensions may have risen as the Trump administration on Thursday announced it intends to impose tariffs on steel and aluminium from Canada, Mexico and Europe as of Friday. The increased tensions have seen a return to the safe haven of bonds as US ten year treasury yields have fallen back below 2.85%. Ten-year German Bund yields have fallen to almost 30 basis points. That statistic alone tells you the level of fear that currently exists within Europe.
Inflation in Europe suddenly jumped in the month of May to 1.9%, well above the 1.4% expected. This may be as good news for the economy overall, it does beg the question what will be the reaction of the ECB at their next meeting in a couple of weeks’ time. There will be no real possibility that they will change current policy, but this jump may make the language a tad more hawkish than planned.
Two of the most successful investors in modern history and George Soros and Warren Buffet continue to demonstrate how opposing their views on the investment world are. George Soros seems to be a permabear. He came to fame betting against sterling during the early 90’s, as we left the ERM. His latest speech to the European Council on Foreign relations he refers to the EU facing an existential crisis between Brexit and the Italian situation. He then goes onto refer to all the other current bricks in the wall, Iran, the stronger dollar and its impact on the emerging markets, suggesting we may be heading for another major financial crisis. Mr Soros always seems to be looking for the next crisis. He always appears to be his glass is half empty.
On the other hand, Warren Buffet always seems to be looking for opportunities as it was recently reported on Bloomberg that Mr Buffet had looked to become an investor in Uber. Mr Buffet takes the view that stocks are for buying not selling and the next crisis just brings more opportunities.
In a way they are both right the next crisis may be round, the corner and any one of the current concerns could cause it. It is also true as was the case in 2008 it brings opportunities.