The EUR could gain a temporary lift in the wake of recent announcements', agrees Citi FX Markets Strategist Michael Hart, 'but it is not clear if this will be sustainable… any agreement to provide assistance for Greece represents a positive step at this point, but several factors should contribute to market unease…furthermore, any easing concern on Greece could only serve to have investors set their sights on other fiscal delinquents, safe in the knowledge that they would be rescued… all told, a period of EURUSD weakness is probably still on the horizon, particularly once a more pronounced pick-up in US yields materializes'.
'Further tightening is still our central scenario', reaffirm the European Credit Outlook, 'given corporate fundamentals are improving rapidly, recovery is on track, valuations are not yet stretched and inflows continue… however, sovereign uncertainty makes us question the value in chasing that central scenario: based on current fiscal trajectories, the IMF estimates that not just the Eurozone periphery but also countries like Germany, the UK and the US will have to run primary surpluses on par with the best years in the past 4 decades every year for 15 years from 2015 just to get debt levels to long-term sustainable levels by 2030… add the consensus long, and this is what keeps us from strong directional views… instead, we fav our relative value between US and European credit, between EM and developed markets, positioning for sovereign steepening and hedging idiosyncratic longs with systemic protection using super senior tranches'.
The Globaliser
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