QE or not QE, that is the question! MT report on European markets
Draghi’s problem is that he will not be left alone and with Macron and Merkel looking to move their agendas forward, with extremist groups increasing in popularity, and an Austrian election that should have spooked all European politicians, pressure is likely to continue from all sides. Knowing this, he may make a political decision with QE, rather than economic. When last faced with the decision on QE, he extended for as long as possible to avoid political interference; he may be wise to do the same this time.
Currencies: The Euro may not be such a one-way bet as many expect.
Bonds: Political risks in Europe will continue into 2018 and with fewer peripheral bonds purchased in a market where much of the liquidity has dried up, Bond price volatility is likely to continue (though implied volatility remains historically low); where possible, movement in spreads around event risks should continue to provide Relative Value opportunities.
Equities: The RV trend of 2017 has been the move out of US equities and into Europe, but in the short term, political risks in Europe and a reduction of QE may slow the speed of this trend.
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