If we take the degree of price volatility on the equity markets as a benchmark, the first five months of 2017 were extremely tranquil. VIX, the volatility index, has been more or less static, staying firm at a low level despite agenda items that could scarcely be more exciting. By the same token, there are ample reasons why investors should not be looking ahead with hardly a care in the world:
- Political risks continue to loom, especially the risk of deglobalization. Deglobalization encourages inflation and acts as a spanner in the works when it comes to growth. It is a lose-lose situation for everyone involved.
- The political diary remains well filled in Europe (eg, Brexit negotiations), particularly in the euro zone. Elections are scheduled in Austria. Premature elections in Italy cannot be ruled out. The Eurogroup (the council of euro-zone finance ministers) is debating whether to approve six billion euros to enable Greece to refinance its debts, which mature in July. And what form the continued involvement of the International Monetary Fund will take remains to be seen.
- Discussions on capital markets are again likely to focus more strongly on the divergence in monetary-policy approaches – particularly between the US Federal Reserve and the European Central Bank. Contrary to our expectations, the markets seem to be assuming a looser approach by the US currency guardians than is to be expected.
- The global growth trend remains low in light of demographic trends, low productivity growth and debt levels that are too high around the world.
At the same time, there is also a positive side to consider:
- The global economy is continuing its solid recovery albeit with signs of slight cyclical weakening.
- Although the political uncertainty in the euro zone is far from alleviated, it has calmed down noticeably following the various elections in recent months. The crises that jeopardized the existence of the euro zone have been averted.
- Despite the aforementioned divergence in global monetary policy, it still remains extremely expansive from an overall perspective.
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Important Information
The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.
Past performance of the markets is no guarantee of future results. This is not an offer or solicitation for the purchase or sale of any financial instrument. It is presented only to provide information on investment strategies and opportunities.
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