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25-year market veteran: Europe has reached the "most dangerous" moment?

November 08, 2018 18:12
source: WEEX Daily Trading Plan
edit:Eastern Fortune Network

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[25 years of market veterans: Europe has reached the "most dangerous" moment? Data released last week showed that the manufacturing PMI of the Eurozone fell to 52 in October, slightly lower than market expectations of 52.1, the lowest level since August 2016.

Data released last week showed that the euro zone manufacturing industry in OctoberPMIIt fell to 52, slightly lower than market expectations of 52.1, the lowest level since August 2016.

This year, the euro/dollar fell from the high of 1.2500 in the first quarter. As of today, 13:16, the euro / dollar quoted 1.1431.

Brown Brothers Harrimanbank(BBH) Senior Vice President and Global Monetary Strategy Director Chandler analyzed that the economy of the Eurozone has weakened since 2018, and all kinds of sizes have been raging. Under the risk of parties inside and outside the region, the euro is weak relative to the dollar. And he believes that the US dollar demand is tight at the end of the year, the US monetary policy is conducive to the continued appreciation of the US dollar, and the euro will be further under pressure.

(Euro/US dollar recent trend, image source: investing.com, click on the picture to start trading easily~)

Eurozone economy weakens

In 2018, the euro zone's economic growth showed signs of weakness. Chandler expects that European Central Bank President Mario Draghi's public speech will continue to maintain an optimistic tone, and hopes that the tightening labor market will stimulate domestic demand and prices. .

Chandler believes that economic growth in the euro zone will be slightly higher than historical trends, but the general direction is weak.

The Bundesbank warned in October that the German economy may have stagnated in the third quarter.Automobile industryA new round of emissions testing may have a negative impact. Coincidentally, the German Ministry of Economic Affairs also lowered its growth expectations for Germany this year and next year in early October, indicating weak external demand. However, both the Bundesbank and the Ministry of Economic Affairs said that the German economy may recover in the quarter due to the stagnation in the third quarter.

But Chandler said that the Bundesbank will update its economic forecast until December, and he predicts that both German manufacturing and service industries will fall.

He believes that the current threshold for the European Central Bank to expand the scale of asset purchases is very high, and disappointing economic data is not enough to reverse the general direction of its monetary policy. Draghi can instead choose to implement a special monetary policy such as the purchase of bonds that are due, Chandler said similar special monetary policy includes the implementation of negative depositsinterest rateFully implement refinancing of fixed income products and more lenient rules.

Member state financial issues

The financial problems of EU member states have once again returned to the headlines. At present, Italy's budget bill dispute is the EU's top priority, but Chandler reminds investors that France and Spain have also proposed to withdraw the previous commitment to the budget.

He believes that both the EU and Italy want to avoid the recurrence of the previous Greek crisis, and the real economic data will be more significant than the predicted effect, so he speculates that the duration of the Italian-European budget dispute may be extended, and the two sides may be in a tit-for-tat next year.

EU leadership is still pending

The European Parliament elections will be held next spring, and the leadership of the European Central Bank will change accordingly. Draghi’s term will end in the fourth quarter of 2019, when a new vice-chairman will be elected. Many market participants expect that this time it will be the turn of the Germans to act as the ECB president, and the German central bank governor Weidmann will become the No. 1 candidate.

Chandler believes that with the weakening of the European economy, the ECB president will be a thankless job. He predicted that due to the current EU prospects at a crossroads, this time Germany will strive for the absence of the European Parliament President and the ECB President.

On the other hand, he pointed out that the main political parties in the four core countries of the Eurozone - Germany, France, Italy, and Spain - are all facing domestic challenges and are not as popular as they are ideal.

In addition, in his view, the two parties of the Italian coalition government are not traditional allies. Apart from this budget, the future may cause other disturbances.

Other political risks in the EU

Europe is facing a wide range of political risks at the same time. The Brexit Brex has not yet been finalized, and the risk of “hard Brexit” has made investors uneasy. This seems to be a very important risk for the EU in Chandler’s view. He said that when Teresa May’s negotiations with the EU were more effective, her relationship with the British Parliament became more tense.

In addition, the European Court of Justice rejected the Polish Supreme Court reform in October, which could trigger another wave of disputes between the EU and its member states.

The impact of the international situation on the euro

Chandler believes that Europe's huge trade surplus and the euro make German exports very competitive, which makes the United States feel uneasy.

He believes that this may result in a shortage of US dollars due to US tax cuts, the company's return to the US mainland, and the US interest rate hike expectations in mid-December. These financial conditions will put pressure on the euro at the end of the year.

The difference in monetary policy between the United States and the euro zone is conducive to the appreciation of the dollar. Chandler pointed out that the current situation and exchange rate of the two regions have partly reflected this situation. However, he reminded investors that the US and German two-year national debt spreads now exceed the record-breaking 350 basis points, the United States and Europe.interest rateAnd the divergence of monetary policy will further promote the appreciation of the dollar.

Finally, Chandler said that the current situation in Europe is not enough to trigger a new round of recession, but the risks of various aspects of the political economy will cause the EU to have a headache for a while and may have some negative impact on the economy.

(Article source: WEEX Daily Trading Plan)

                (Editor: DF134)

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