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Sentiment 05/2018

Equity market’s scene is getting complicated. Very negative month was May for some European markets, with a strong sell-off for the Italian and Spanish indexes , as well as for some emerging markets (Brazil, Turkey, Mexico, Malaysia).

To complicate the picture certainly contributed the Italian electoral result  on fears to the holding of the euro, which has slashed the equity and bond prices, the revival of duties war and finally the strong appreciation of the dollar that depressed the currencies of the emerging countries.

Recently, other negative elements have been added to the already complicated picture, such as the forecast for QE reduction by ECB and consequent rise in European interest rates. However, output data on the productivity index and orders in Germany and France show a marked slowdown, so the ECB could desist from the immediate rate hike.

Interesting  however as the SP500 index, which more than other indexes caused worries, returned near the  year's highs helped  to the excellent corporates quarterly even by failing to exceed the  threshold of 3%  bond yield .

However, we believe that this cycle has already expressed its full potential and that in the coming months we will see a slow and exhausting lateral movement: we find ourselves in practice in the typical distribution phase.

We just have to reiterate what has already been written in our April column: we remain on standby with a moderately positive view, particularly on the US market, while on the bond market we reaffirm the opportunity offered by 10-year bonds for the convenient risk / reward ratio.

Giorgio Giovannoni