Welcome to the Week End Blog. The Greek roller coaster has still not reached its end. After Germany rejected a Greek letter asking for a six-month ‘bridging’ period, another Eurogroup meeting, Friday the 20th, will now seek a sustainable result. And while Mr. Varoufakis has a very optimistic attitude towards reaching an agreement, he did not book a hotel for the night in Brussels, this could become a long one.
Greek roller coaster update. Germany rejects Greek extension proposal. we are going all the way here...#Greece http://t.co/1SrQukyOuh
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jeroen blokland (@jsblokland) February 19, 2015
How will it end? I don’t know. How do things that look like this end?
When one cartoon says more than a 1000 words! By @EconEconomics #Grexit http://t.co/fXW5aaCFkI
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jeroen blokland (@jsblokland) February 19, 2015
At least the markets are very convinced that this new chapter in the European debt ‘crisis’ will get a happy end. I’m not sure if I should call it complacency but the following comes to mind. If it looks like a duck, swims like a duck, and quacks like a duck, then… European stocks have risen more than 10% since the start of the year, climbing a rather steep wall of worry.
An extreme case of complacency? European stocks are up 11% ytd as #Greece heads for the debt cliff. http://t.co/H3YkwDYN6a
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jeroen blokland (@jsblokland) February 19, 2015
With the market so upbeat, any signs of contagion are hard to find. Perhaps the only indicator that Greece could have spill over effects for the rest of Europe are bond yields. For a long time Italy’s spread over German bonds was significantly higher than that of Spain. But with the rise of Podemos in Spain the two spread levels have converged of late.
The #Podemos effect. The Italian bond spread over Spanish bonds is now practically zero as Podemos leads the polls. http://t.co/iAssYg6LZA
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jeroen blokland (@jsblokland) February 17, 2015
Interest levels for all Euro zone countries remain extremely low, though. To give you an idea, the difference between the 10-year Treasury and the 10-year bund yield has reached historical levels. You now get a ‘bonus’ of 1.7% for holding US government bonds.
The US-German interest rate differential is at a historical high. You get 1.7%(!) more on a 10-year govt bonds. http://t.co/EWCt24nFOp
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jeroen blokland (@jsblokland) February 20, 2015
There are, of course, obvious reasons for this difference in yield. Deflationary pressures are more visible in the Euro area. In fact, you have to look really hard to find any positive inflation numbers at all. These deflationary forces made the ECB to start its own QE program, pushing down yields even further.
Chart of the day! #inflation spaghetti. There is not much inflation left in Europe. http://t.co/A5ZoWYVOUl
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jeroen blokland (@jsblokland) February 19, 2015
The US is moving exactly in the opposite direction. Strong job growth and the first signs (finally) of a sustained increase in wages will allow the Fed to raise rates later this year. But with low inflation and monetary easing going on almost everywhere else in the world, Yellen will have to be brave to pull through.
#Fed futures show rate hike still on for Q3 this year. http://t.co/fTAJmiWvUW
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jeroen blokland (@jsblokland) February 18, 2015
Monetary policy is not the only thing that is diverging between Europe and the US. In recent weeks macro data in the US surprised on the downside while macro numbers in Europe came in above expectations. This divergence in the surprise indices explains much of the recent outperformance of European stocks.
Divergence! In the Eurozone macro surprises are on the rise, while macro data in the US disappoint. http://t.co/9zSSA7cRVD
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jeroen blokland (@jsblokland) February 20, 2015
One of these European macro surprises is consumer confidence. It took a while to get there, but consumers are currently the most optimistic since 2007!
Eurozone consumers are most optimistic since 2007! Don't rule them out just yet. Chart via @MxSba http://t.co/S8xpB9msli
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jeroen blokland (@jsblokland) February 19, 2015
This optimism is not shared everywhere in Europe, however. The Swiss are still digesting the decision by the SNB to drop the peg of the CHF to the EUR. Growth expectations collapsed since then. The Swiss can’t be happy with their central bank right now.
Wow! The Swiss can't be that happy with the #SNB right now. Growth expectations collapse after CB removes euro-peg! http://t.co/55Tt73l3AY
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jeroen blokland (@jsblokland) February 18, 2015
On average things look pretty upbeat in Europe. But, if you are thinking to allocate some money to European stocks, take a second to look at the chart below. Many investors agree with you and have overweight positions in the region.
BAML fund manager survey titled 'In QE we trust' shows a record % of fund managers is already overweight European Eq. http://t.co/IONUlcmbhO
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jeroen blokland (@jsblokland) February 17, 2015
Last but not least. Who’s winning the oldest battle out there? Men against women. Do stocks more liked by women beat stocks more liked by men? Wealth manager SigFig put out a piece that (again) showed that the overconfidence of men leads to inferior returns compared to women. It also showed that women like completely different companies than men. I tried to find out which companies yielded the better return. To see the results please click here.
Who's winning? Men and Women liked Stocks Compared. Based on recent @SigFigInsights research. jeroenbloklandblog.com/2015/02/17/who… http://t.co/g0uTY7g1ZY
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jeroen blokland (@jsblokland) February 18, 2015
Enjoy your weekend (both men and women)!