But a big question mark remains over Greece. Rumours that a deal had been reached did provide comfort for investors, pushing the Footsie over 7000 after the late May Bank holiday. But time is running out and both sides still appear to be far apart on how to structure any repayment plan for the future. The election of anti-austerity local candidates in Spain – a country due to go to the polls nationally later this year – demonstrates that vast swathes of the European population are becoming fed up with the tight rein being imposed by Germany.
Meanwhile, Prime Minister David Cameron has embarked on a round of shuttle diplomacy to try to win over the leaders of other European nation states to the concept of change within the EU. Some of his ideas will doubtless fall on sympathetic ears, though others will be working to a different agenda. What seems clear is that achieving treaty change could prove a tough obstacle. With so much uncertainty surrounding the European Union, it is hard to see shares making much headway as we head towards high summer.
At least bond markets appear to have settled down. The recent nervousness they have displayed has much to do with when the US might start raising interest rates. Sovereign debt has already priced in a modest rise, but then they are probably the most sensitive to what action the central banks are taking. Corporate bonds might even take comfort from a rate rise that confirms economic growth is now considered to be sustainable. Anyway, these issues tend to yield more and are much more vulnerable to a rise in inflation.
As yet there is no evidence to suggest the cost of living is about to accelerate upwards, but this is the indicator that we need to watch most closely. Inflation has been the unexpected conundrum in the round of monetary easing that has been embraced by much of the developed world. Perhaps the absence of upward pressure is the best indication yet of the nature of globalisation that has taken place. Let us hope it does not re-emerge to upset all our calculations.
