Eurozone: Investment climate guided by the latest developments - BBH

Research Team at BBH, suggests that the shift in the global investment climate is being guided by the latest developments in Europe. 

Key Quotes

“It is not the European economy per se.  Eurozone growth is near trend, and the flash November PMIs raise the hope of some modest improvement.  However, unemployment has been slow to improve.  After finishing last year at 10.5%, it has been stuck at 10.0% since July.  October will be reported on Thursday.  Money supply growth had stabilized near 5% since the middle of last year, but it was just reported as slowing to 4.4% y/y in October.  This is the slowest since March 2015.”

“Those at the ECB who want to extend the asset purchases anchor their arguments in the weak price pressures.  The preliminary CPI will be the last look at inflation before the ECB meets on December 8.  The headline rate may tick up slightly to 0.6% from 0.5% in October.  It would be a two-year high, but the increase since the 0.1% rise in July is largely a function of oil prices, as the core rate has been steady at 0.8% in recent months and is expected to remain there in November.”

“The prospect that the ECB could alter is self-imposed rules about its asset purchases (which would allow it to buy more German bunds) helped drive the German two-year yield to new record lows last week.  The yield fell to minus 76 bp ahead of the weekend before closing near minus 74 bp.  Although most of the media coverage has focused on the rise in US yields, last week, the German rate move was larger.  Its 2-year yield fell almost 8 bp, while the US 2-year yield rose less than 5 bp.”