Thursday, 8 January 2015

Europe - Stormy Weather Clearing

Today's Uk weather forecast could be applied to how I feel about Europe. "Today's stormy weather will clear to the east bringing in scattered showers but with sunny periods'

Current storm 

Growth data is terrible
Inflation data negative
Interest rate expectations are through the floor (QE et al)
Structural problems

Gaps in the clouds

Collapsing energy prices is good deflation (stimulation)

Falling currency (stimulation) - I haven't seen or heard any data on how many fewer petrodollars EU now has to buy, probably because it doesn't support the sell EUR/USD meme.

Potential to patch things up with Russia - Yes, I do see this as being a big part of the confidence problem in Europe but I am holding probably more hope for positives out of the 15th Jan Astana conference than most

Greece is not sinking EU - No, it won't and German hints at debt restructuring defuses extremist Greek policy.

Structural problems - The one thing we have learnt is that the EU is built not out of rigid girders but out of copper piping. If it doesn't fit there will be some plumbing lawyers capable of bending it to do so.

Merkel being a diplomatic genius - The lady is impressing me more and more and I wish she was standing in the May UK elections. I'd vote for her over any of the current UK leadership offerings.


This leads me to think that the growth data we are seeing is lagging some immediate positives. The immediate negatives are all definitely negative but could quiet easily improve.

If I therefore look at this dip in the European economy being near a low but the ECB sees this as a dip deep enough to warrant  throwing in a QE stimulus bomb. Which, in my eyes, could be like throwing a firework into the petrol store because it feels a bit cold in there.

None of this means that the EUR will bounce as a currency because that's all wrapped up in interest rate expectations but considering how extreme the views on US/EU interest rate paths are it shouldn't take much to tip it.

The only positive effect of the horrendous Charlie event is that I don't think I have seen Europe so unified in response to anything. Awful events such as this scratch off the hard skin of nationalism and show that underneath Europe is more unified than perhaps many had realised.

So, come on folks, Europe isn't THAT bad.

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