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Let’s get into it.
I have been struggling to write a post on Europe for two weeks.
I am still struggling.
General crux is:
Europe can kicking has reached end of the road due to Ukraine - Fiscal is coming - in size - across the whole of the EU
Northern European Industry and Banks are most exposed to the fallout from Russia and the surge in energy from the last two years. The same northern European nations have been the enforces of austere policies - these are are now in the rear view mirror
European Capital flows had started to turn positive for the first time in a decade prior to Ukraine invasion
The PIGS who have been starved of demand are likely to benefit massively
A number of other secular trends like the movement of workplace culture towards hybrid/remote is going to see massive capital inflows into Southern Europe - Lisbon et al booming with remote workers
Fiscal defense spending will see direct transfer of capital from state to population
I will write something more coherent in due course.
Some charts for your perusal - the same common theme - a decade of poor performance/downtrends all being broken
FTSE MIB (Italy) - Quarterly
PSI20 (Portugal) in USD - Quarterly
SX5E in USD - Quarterly
Roll Adjusted SX5E futures - Quarterly
SX7E (banks) - Quarterly
Stoxx 600 - Quarterly
Bund Yield - Quarterly
EURUSD - Quarterly
EURJPY - Quarterly
Capital flows are now positive for the first time in a decade
Very loose fiscal and tighter monetary should be VERY good for the currency.
I would highly recommend reading
Reagans Imperial Circle - Soros
Good Luck
This is interesting, thanks. Been thinking about it. Would love to hear this more fleshed out. Appreciate the Soros arguments. I think the setup is different in some important ways - global inflation (however you cut it) is on the uptrend while in '84 it was on the downtrend. Also how much appetite is their for Euro-assets ex EZ? The "Benign Circle" relied on US military protection, high real rates, and arguably in a Triffin-type way a need to own the global monetary asset (USD); how does European embody any of that today or future? Last, despite increased fiscal spend (generally defense-oriented and less social services, from what I read), how does tighter monetary policy not ultimately haircut euro assets? I struggle to see how ECB methods to bring inflation measures down doesnt keep Euro markets - especially equities - pinned. Would love your thoughts, your notes have been very thought provoking -- cheers!