Watch out for a euro zone economic bounce back
STOXX 600 unchanged
China bounce loses steam
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WATCH OUT FOR A EURO ZONE ECONOMIC BOUNCEBACK
Investors shouldn't ignore the possibility of meaningful economic stimulus in Europe, despite the political challenges, said Jon Levy global strategist at Loomis Sayles, particularly as the economic situation worsens.
Euro zone economic data has been grim, especially in Germany, the bloc's economic heart, where this week's PMI data showed business activity in September contracted at its sharpest pace in seven months, suggesting the economy has tipped into recession.
"The worse things get, particularly in the German manufacturing sector, the chance of a counter offensive grows."
"If you wake up one day and even 10% of what was incorporated in the Draghi report is announced, things could move quickly the other way," Levy told reporters, saying this was a risk for those biased towards a weak euro.
While the common currency has risen steadily in recent months and is holding above $1.10 this is still weak by historical standards. EUR=EBS
Former European Central Bank chief and Italian prime minister Mario Draghi said earlier in September in a long awaited report that the EU needs far more coordinated industrial policy, more rapid decisions and massive investment, though analysts said scepticism by some governments, particularly in Germany could hinder the proposals.
As for bonds. "I don't think that European government bonds really price the prospect that you get some sort of fiscal reaction," Levy said.
He said this would require investors to add term premium into curves - i.e. higher yields on longer dated bonds based on the possibility of higher central bank rates in the future.
(Alun John)
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