Stock markets: a period of stability is expected until early 2027. All eyes are on inflation

(Il Sole 24 Ore Radiocor) - Financial markets are expected to stabilise over the coming months. This is the view of the majority of Assiom Forex traders in the July survey conducted by the association in collaboration with Il Sole 24 Ore Radiocor. On inflation, traders warn that it will remain high for a long time and that central banks will need to remain ‘prudent and vigilant’. On the equity front, 44 per cent of respondents, in line with the previous June survey, expect that stock markets will remain stable between now and the start of 2027. The proportion of those expecting a further rise in share prices has fallen, whilst remaining at high levels (from 43% to 31%). At the same time, the proportion of those forecasting a downturn has risen to 25% (from 13%). The July survey “shows a stabilisation in investor expectations following the gradual recovery in confidence over recent months, thanks to the positive performance of European equity markets, driven in particular by the energy, media and banking sectors”, comments Massimo Mocio, president of Assiom Forex.

According to 69 per cent of those surveyed, inflation will remain high – and above central banks’ targets – for an extended period. The remaining 31%, however, expect the inflationary outlook to improve, supported by a fall in energy prices driven by a gradual normalisation of tensions in the Persian Gulf region. “The escalation of geopolitical tensions affecting the Middle East in July has influenced the expectations of our sample of respondents,” according to whom, “monetary policy authorities will need to maintain a particularly cautious and vigilant approach,” comments Mocio. In fact, almost one in seven market participants does not expect a further fall in prices, following the slowdown in inflation recorded in June.

Financial market operators are increasingly anticipating a scenario of stability in the euro-dollar exchange rate. 57 per cent of those surveyed expect the balance of power between the two currencies to remain stable over the next six months. This figure is up from the 42 per cent recorded in the previous survey in June. Meanwhile, expectations of a further weakening of the single currency have fallen from 32 per cent to 18 per cent, whilst the proportion of those forecasting a strengthening of the euro remains unchanged at 25 per cent. “In the foreign exchange market,” notes Mocio, “the euro strengthened marginally against the US dollar in July. From 1.142 at the start of the month, the exchange rate closed the period at 1.152, close to the highs reached during the month and within a narrow trading range.”

Confidence continues to prevail amongst financial market operators regarding the trend in the spread between BTPs and Bunds. “On the bond front, there remains very strong consensus that the BTP-Bund spread will remain stable,” says Mocio. In fact, 75 per cent of those surveyed expect the spread between Italian and German government bonds to be between 50 and 100 basis points over the next six months. This figure stood at 82 per cent in the previous survey in June. For 21 per cent of respondents (up from 13 per cent in June), the spread will move within a range of 100 to 150 basis points, whilst only 4 per cent (down from 5 per cent the previous month) expect a spread of between 150 and 200 basis points.