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Instability in Italy

Little in the way of good news could be found in January 2019 to help equity markets recover from their falls in 2018 but recover they did which may suggest that at least some of the bad news is now discounted in prices. Europe continued to be threatened by the instability in Italy where the economic environment is deteriorating. Not only has the economy now contracted for three straight months but the banking system also proved problematic with Banca Carige entering into temporary administration. The Italian financial system has of course been in a fragile position for some time now but this will only be exacerbated should there be no GDP tailwind. Global growth seems unlikely to help with China looking increasingly fragile. Theresa May’s lack of control over the Brexit process also persisted despite the clear message from Parliament that her original plan was unacceptable.

It’s encouraging to see equity markets start the year on such a positive note and we can see further upside should the current signs of a slowdown not prove more sinister and turn into a European or even global recession. The upcoming results season should shed further light on what’s going on and we will of course monitor developments carefully.