"Three Moving Parts in Euro Story Deserve Investor Attention"
Original Story by Michael Hood of Institutional Investor
Since European Central Bank President Mario Draghi's speech in late July promising to do "whatever it takes" to save the euro, euro area markets have rallied and the crisis has faded as a source of concern for markets in the U.S. Investors who earlier were following the details of Greek coalition politics have turned their focus to other topics, mainly the potential fiscal cliff in the U.S. While it is no longer an immediate threat to global risk assets, the euro zone crisis continues to unfold and may return as a headline in the news.
The coming months will likely bring both good and bad news for the euro area. The improvement in financial conditions achieved in recent months, if maintained, should help promote stronger growth in 2013. That pickup in turn may represent part of a broader narrative of improving business cycle conditions outside the U.S. By contrast, the euro area's institutional progress will likely leave "the region vulnerable to bouts of political disturbance and worsening sentiment," Hood comments.
The three moving parts within the euro area story that Hood believes deserve investor attention are:
- Financial conditions have improved significantly, but are now at risk.
- Nothing doing yet on the growth front.
- Shaky institutional progress, with Greece back in focus.