So….. what does it all mean? Short-term: •
BTP & Club Med spreads should improve. The slowing growth makes Germany partner with Italy and the ECB, hence “indirect support” just increased into lower inflation and lack of yield.
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Our 1.03/1.05 EURUSD call has increased odds probably from 50/50 chance to 60/40 (Position through CHEAPEST volatility EVER!
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Banking sector (SX7E) should do well next week-ish, but do note – banks already anticipated this with YTD returns of 14%
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Dollar strength could shift momentum out of commodity & EM through rising DEBT load from stronger USD.
Medium-term: •
European Parliament elections create more event risk – and increase in call for fiscal spending.
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Inflation expectations could start to rise slowly (from H2 -start).
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Data can not sustain the built-in overconfidence in sentiment – turning the needle down onthe price of money really makes ZERO difference. TLTRO really is just “state support” in the Keysian way.
Long-term (H2-2019): •
Europe will enact fiscal panic. The Eurozone budget deficit to GDP @ -1% in 2018 – the ECB and the Eurozone will see this a “free money”. Don’t forget low inflation is the biggest risk in a central bank's outlook – not lack of credit, inequality or market valuation.
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MMT – learn, educate yourself – not hard – I promise!
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EUR hits 1.03/1.05
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Germany joins Italy in recession.
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10yr Bund yield goes to – 50 bps.
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EU equity will be dirt cheap in relative and absolutely terms.
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There could be a big opportunity for Europe to implement longer vision for Europe because of the growth crisis. I see Europe “needing” a crisis to redefine itself.
Despite the above, safe travels to you all,
Steen
