Wow! Check the moves in the large Eurozone bank stocks today and for the week. And, unlike the U.S. market, on heavy volume. Euro sovereign spreads are bit tighter on the week with exception of Portugal, which Standard and Poor’s relegated to the junkyard last Friday.
After our post last week about confidence improving in Europe, we now sense markets are starting to perceive the big two — Italy and Spain — have been ring fenced from Greece and Portugal. Sovereign risk, within certain bounds, is largely about confidence and is why some countries can fund themselves with debt loads three times greater than others that can’t.
The first big test of our hypothesis will come when Greece defaults. Longer term, reform fatigue and political risk will be the major drivers of European volatility, in our opinion.
Stay with Global Macro Monitor throughout the year as we closely monitor the situation in the ‘zone with our Weekly Eurozone Watch.
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