Eurozone: Politics pose minimal risk - Westpac

According to Tim Riddell, Research Analyst at Westpac, politics had been seen as a minimal risk for the Eurozone, but the Catalan threat of a unilateral independence declaration, disconcerting rises in periphery parties in Germany and the prospect of Italian elections in H1 18 highlight EU’s considerable political hurdles.

Key Quotes

“Macron has lauded further integration, but it could push EU towards a dual system rather than unity. Departing German Fin. Min. Schaeuble affirmed that a coalition may take months to form and so Merkel’s steadying hand may not soothe EU-27 tensions into 2018.”

“ECB do not meet until 26th and so data and politics will be key drivers near term. EZ Sep PMIs were generally very firm, but there are hints of moderation. Industrial production will be keenly awaited as ‘hard’ data has yet to lift to survey levels and EZ unemployment remained over 9% with additional underemployment slack.”

“EUR/USD retracements should find support (1.15-1.16) especially if industrial production lifts towards survey data.”