By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

Less geopolitical tension, better growth prospects In June, markets continued to rise as geopolitical risks declined across the board and growth and inflation momentum improved in most major economies.

The Iran-Israel conflict was ultimately very short-lived and led to a sharp rise in the price of oil, immediately followed by an equally sharp fall once the conflict was (presumably) over. In our view, this event will not have a significant lasting effect on energy prices. It should be noted that since the beginning of the year, the price of oil and natural gas in euros has fallen sharply, which should be very positive for European growth in the medium term.

Relations between the United States and China have stabilised following meetings in Geneva and London. Tariffs remain high between the world's two largest economies, but the tone is conciliatory, rare earth exports have resumed, and the worst seems to be behind us. As for other countries, the situation is less clear with the 9 July deadline looming, but it seems that most countries agree to accept 10% tariffs to avoid further friction.

The NATO meeting concluded with an agreement to gradually increase defence spending to 3.5% of GDP by 2035. Again, this is rather good news for the markets, as it implies higher budgetary spending in the coming years.

On the American side, tax reform also seems to be well on track, with a bill approved by the Senate and debated in the House of Representatives; it is likely that the reform will be passed fairly quickly. Again, this is rather good news for the markets, as it means more spending, which is positive for short-term growth.

In Germany, too, budget expenditure has been revised upwards, with around €50 billion more than anticipated in 2025. The positive effects of the recovery plan voted in February should be felt more quickly than investors expected a few weeks ago. Growth figures, which were fairly positive, also helped to reassure investors. PMIs are stable, the JOLT and NFP reports point to a stable job market in the United States, and the ZEW and IFO surveys have improved in the eurozone. There were no nasty surprises in China either, and growth forecasts for 2025 have risen slightly.

Positive market momentum, but investors remain hesitant

The good news doesn't stop there, as US inflation has once again come in below expectations. This is now the fourth consecutive ‘reassuring’ figure, raising hopes that price increases will be lower than expected. Studies conducted by the Atlanta Fed and the New York Fed show that around 50% of price increases would be borne by consumers (and therefore 50% taken from the margins of importers and exporters).

Despite all this positive news and the upward trend in risky asset markets (credit and equities), investor positioning is still quite far from its highs. This is the case for discretionary management, but especially for systematic management, which should continue to increase its risk levels if volatility remains contained in the coming weeks.

In this environment, the most likely scenario appears to be a continuation of the upward trend in risky assets, despite often unattractive valuation levels. 9 July could see trade tensions resume, but the market has become accustomed to these tensions and, beyond a correction lasting a few days, we believe the worst is behind us. The long end of the yield curve remains at risk due to ever-increasing fiscal spending, but the recent decline in US rates over the past few weeks has moved us further away from short-term danger zones.

We are therefore adopting a slightly risk-friendly stance, with a preference for US equities due to the upcoming earnings season and the sharp decline in the dollar in recent months, for high beta euro credit with a preference for financials, and, as always, a significant allocation to gold.

July Outlook

We are taking a slightly optimistic stance, favouring US equities over Eurozone equities, financials due to the SLR (supplementary leverage ratio) reform, and Eurozone financials over bonds. Gold remains a preferred asset