Eurozone: Politics is not all that matters for the periphery – SocGen

Michala Marcussen, Research Analyst at Societe Generale, suggests that politics is not the only driver for peripheral spreads.

Key Quotes

“On a positive note, concerns on banking system health did not flare up last week – quite to the contrary. Also good news is better euro area fundamentals - something 3Q16 GDP data and ZEW should confirm this week. Herein lies, however, what may prove the next challenge for peripheral spreads, namely ECB tapering.”

“Our call remains that tapering will come only in March, but next week will see no less than eight speeches by ECB Board Members and markets will be on the lookout for clues. The bonus point to ponder on peripheral spreads is European Safe Bonds (ESBies). These are still a remote possibility but are getting more attention from policymakers. There is much to favour ESBies, but one area of concern is that it could reopen the thorny issue of pari passu and that would matter to spreads.”