A big reason why this year’s summer may be more problematic than many is the mixed signals being exhibited by European assets.
Equities and bonds markets appear to be saying very different things about the health of the European economy and direction of asset prices over the coming few months.
According to economics consultant Fathoming Consulting, the recent movement of European equities and bonds are ‘a puzzle wrapped in an enigma.’
Fathom said while the rise in real yields suggests that confidence in the eurozone economy is rising, supposedly as a result of the European Central Bank’s QE programme, the slide in equities prices generally from the highs of early April says the opposite.
Something particularly puzzling about the European equities price fall aside from the fact there is all that freshly printed money coming through into the financial system is that it is happening despite improving corporate earnings.
It does not seem adequate just to attribute this situation to nervousness about Greece given that by most reckonings it is hard to see how a Greece exit would hurt German, French and Spanish corporates earnings, aside from some of the banks.
