If you follow the stock markets, or even just our digest, you will know for sure that the first half of 2019 was all about caution, it's as if the markets were still, motionless, waiting to gauge what would happen.
In these last months, no one, in principle, went for large bulks buys or sells. The markets have mostly given signs of stability: without rising or falling too much.
There were three knots that help markets in suspense; the European elections, the US-China trade war, and Brexit. The unravelling of only a single one, the vote of the European elections started to move markets, which have gained boosted confidence over the near future: a light, yet bubbly, optimising is spreading between investors.
Most of the main markets have started to grow consistently: European equities have gained over 5% in recent weeks, while US equities have gained 4%.
Fortunately, even employment is growing, both in America and in Europe, and inflation seems stable. This is good news, and has postponed the hypothesis of a new recession, despite the fact that there is still a layer of uncertainty over world politics.
Where does all this optimism come from?
The impression is that the markets are starting to believe that the Federal Reserve is preparing to cut interest rates. The European Central Bank could do the same, in the wake of the monetary expansion policy launched by Mario Draghi with his Quantitative Easing.
If this were the case, it would explain more than anything, even more than the uncertain fates of the Sino-American conflict, the recovery of market confidence.
And caution? Where does it come from?
The caution that curbs the markets and makes them be only "optimistic" and not "enthusiastic" can be explained by the decision to keep the cost of money low. On one hand, this suggests that this leads to an expansionary phase in which new investments, new production will be launched and abundant liquidity will circulate.
On the other hand, there are those who fear that the central banks will have to make their currencies more accessible because macroeconomic matters could get complicated and interest rate cuts could be the necessary cure to counter an imminent slowdown in the global economy.
Italy: an incognito
Finally, it should be noted that the markets are looking closely at Italian affairs. After the European elections, the tug of war between the Italian Government and the European Commission has resumed, with the hypothesis that an infringement procedure could be launched against Italy. If this were to happen, it would be a bad signal.
The markets, however, seem not to be particularly afraid and, at least for now, are holding up: the spread is stable, as is the Milan Stock Exchange. Of course if the infringement procedure were to come to an end (it will still take months) then things could get worse, but this is not the case.
What to expect from June?
In order to know which direction the world economy will really take, we will probably have to wait until the autumn although there could already be some movements before the summer. First of all, we must look carefully at the meeting, scheduled for the end of the month, between Donald Trump and Xi Jinping. If things go well, the trade war could have a truce, or even end.
In the same way, as far as the Italians affairs are concerned, in a few weeks we will know whether an agreement will have been reached between the Italian government and the European Commission to prevent the infringement procedure, giving greater stability to the markets and keeping the infamous spread under control.
Finally, in June we will also know if the merger negotiations between FCA and Renault will be able to start again and reach a conclusion. If this were the case, it would fuel up the European markets.