Good Morning,

Markets have been, over the past few weeks, characterised by low levels of volatility, reflecting a high degree of confidence in the ability of the authorities to prevent crises and respond to shocks and expectations that any policy changes will be gradual. However, nothing should be taken for granted as we all know that prolonged periods of low volatility can increase the chances of a market crash. This decline in volatility in asset prices is clearly evident in equities and bonds, however, asset classes such as currencies and some commodities have also seen their fair share of a decline in volatility – in a nutshell, markets appear confident that governments and central banks will be able to maintain economic stability without dramatic shifts in policy and that the stance of monetary policy will continue to support asset prices for an extended period. The lack of major differences in the policy outlook between countries also helps to explain the lack of volatility in currency markets.

On the data front, the Italian economy shrank by 0.1% in Q114 whilst industrial production turned positive. The final figure for the contraction in GDP came in line the preliminary reading released mid-way through last month. Meanwhile, Prime Minister Renzi is seeking a return to growth after a recession that lasted more than two years, having to live with a 12.6% unemployment rate and a steady decline in bank lending to the private-sector.

Across the Atlantic, US equities fluctuated, after the S&P 500 Index had closed at a record for the seventh time in eight sessions. EBay Inc. dropped 2.7%, after saying David Marcus will step down as the head of its PayPal unit to join Facebook Inc. whilst the Facebook share price increased in value. This market decline does not come as a surprise really after bouts of trading sessions recording historical highs. This does not go to say that a bear market is around the corner; merely it is a clear indication that market participants are taking advantage of conditions to take profits following the recent rally.

Elsewhere, Russian, German and Polish officials met in St. Petersburg yesterday to speed up Ukraine peace talks. This comes a day after Ukraine’s Foreign Ministry said peace talks with Russia were yielding progress, as Poroshenko ordered Ukrainian regions to accept refugees from areas where government forces are combating separatists who want to join Russia. . Meanwhile, however, clashes ensued after meetings between Russia, Ukraine and the Organization for Security and Cooperation in Europe (OSCE) in Kiev reached agreement on implementing a peace plan drawn up by Poroshenko.

On a lighter note, Brazil are expected to beat Germany in this summer’s FIFA World Cup and are also expected to score most goals, according to a survey of economists across 52 countries. Brazil, the tournament’s host nation, were chosen above other tournament favourites Argentina, Spain and Germany to win the coveted World Cup and seems to be in line with forecasts based on economic models created by Goldman Sachs Group Inc., UniCreditSpA and Danske Bank A/S.

Have a nice day!