In Europe, Greece remains a question mark, but a solution appears closer than it did at the beginning of the month.
Over the next six to nine months, Greece will remain a source of uncertainty as the third bailout will be slowly sketched out and then cash disbursed in exchange for reforms.
In getting the final agreement, splits have emerged within the rest of the euro area, particularly between Germany and France, but overall the agreement shows the commitment for the region to move forward with integration.
The European Central Bank’s support was also key throughout the negotiations and it had already started verbal intervention as talks were breaking down. There are more tools available to the ECB now versus 2012, in case of future crisis.
For example, just recently the ECB announced it would include three state-owned agencies on its covered bonds purchase list, in what could at some point pave the way for corporate bond purchases if needed in the future.
The outright monetary transactions programme is now also available, after the recent ruling of the European Court of Justice, but is unlikely to be a quick measure as it would require a request by local governments.
Despite the sharp escalation of the Greek crisis since the start of the year, the euro-zone economy has staged a remarkable economic rebound.
Although the region is still in the early phases of recovery, consumer confidence and business activity have picked up, especially in Italy and Spain.
Retail sales have returned above their 2011 levels and car sales have been equally strong. Furthermore, credit has also improved for both households and businesses. Interest rates charged by banks for corporate loans have fallen since 2012, and the drop has been most notable in peripheral countries.
And while the risk of further escalation remains, one should not lose sight of the strong tailwinds that have supported Europe so far: a significant quantitative easing-led dip in credit costs and terms-of-trade conditions, and a strong growth impulse.
We believe the European economy will be able to sail through the political impasse, albeit with more weakness in markets depending on the news flow.
In the US, the question of when the Federal Reserve will feel comfortable enough to start raising rates remains very important for investors.
In the last meeting, the Fed’s Open Market Committee participants marked down their 2015 GDP growth estimates to reflect the soft first quarter, while the median rates projection still showed two increases this year.
A first rise in September and another in December also remains our base case.
A delay could be prompted by deceleration in US economic activity or contagion to US markets from events abroad – Greece being the largest question mark at the moment.
We believe the gradient of increases will be low and slow as monetary conditions will stay accommodative for a lengthy period.
Even if the Fed raises rates twice this year, a Fed funds range of 0.5 to 0.75 per cent is still below the low in the last easing cycle (it bottomed at 1 per cent in 2003-04).
In the past, the lead-up to tightening resulted in markets performing as we would expect – equities and Treasury yields rose, while the dollar strengthened.
The Fed’s current situation differs from the past in a number of important ways. On the one hand, worries may arise from the unprecedented length of time rates have been at zero and the unprecedented size of the Fed’s balance sheet. On the other hand, Fed communication is more transparent than ever, and the start of increases will not surprise markets, as it did in 1994.
Furthermore, we do not expect a spike in longer-dated yields, and continuing QE programmes in Europe and Japan should help to suppress US rates. The North American economy is clearly improving and, in our view, that will matter for markets much more than slightly higher policy rates.
Cesar Perez is the global head of investment strategy at JP Morgan Private Bank