Broad global equity indices struggled to make headway through the month, as concerns over Greece and comments from US Fed Chairman Janet Yellen about high equity valuations weighed on markets.
The latest data from Japan showed an acceleration in its recovery from last year’s slump as the economy expanded at an annualised rate of 2.4% for Q1 2015, its second successive quarter of growth. There was also positive news from the Eurozone, where the European Commission raised its 2015 growth projection to an annualised rate of 1.5%. May reports showed local economic confidence remaining near a four-year high as businesses and consumers shrugged off concerns of a potential Greek debt default.
- Over the last seven years Central banks across the developed world have added over US$7 trillion of additional liquidity to the global economy in an attempt to stave off the worst effects of the banking crisis. While this stimulus has helped prevent a more severe downturn in activity, it is clear that much of this monetary largesse has become trapped within the financial system.
- While the flow of liquidity will dwindle now the US Federal Reserve has ended its asset-purchase programme, the pace of reduction will be mollified by the stimulative policies being pursued within the Eurozone and Japan.
- The recent increase in bond and currency market volatility points to investor uncertainty over how these two forces will play out.