Markets have started looking on the bright side of life again after the Dutch elections, if tighter spreads in some European markets are anything to go by. Somewhat paradoxically, yield curves across the world have barely moved in spite of the Fed’s hikes and since Trump election, suggesting markets are not pricing in any acceleration in recovery or central bank movements, in spite of the brightest economic prospects since the Great Financial Crisis.
The main driver of increased appetite may therefore be a perception that political risks have receded, while the good health of the economy still fails to convince markets to embrace a more risk-on mood. The spectre of a possible upset in the French elections may still be weighing on markets, together with Italy complex political situation, or, more subtly, a lack of confidence in the strength of the European recovery.
Source : AXA Real Estate