The Worst Euro Risks Might Not Be Over


If you have watched the U.S. stock market rally in 2013, you might think that all the austerity and budget woes in Europe have passed. It turns out that Europeans themselves do not agree. A new quarterly investor survey of fixed-income managers from Fitch Ratings titled "European Investors Say Worst of Euro Crisis Not Yet Over" outlines how there may still be many risks in Europe.

Fitch's report shows that the majority of European investors believe that the buoyant financial markets simply are not reflecting the underlying weakness in Europe. Fitch went on to say that there are two camps of doubters and the rest are broken out as well:

  • Some 29% feel that this is a short-lived period of market calm.

  • Some 30% said markets are irrationally exuberant, ignoring the weak economic outlook for Europe.

  • Some 41% of survey respondents think the worst of the crisis is over due to strong support from the European Central Bank and policymakers.

In short, that is 59% negative versus 41% positive on the European economic outlook and markets, according to the Fitch quarterly investor survey. It appears that this puts extra risk going into the summer. Fitch went on to say:

There is a stark dichotomy between the continuing recession with rising unemployment across Europe and the rally in financial markets, in Fitch's view. If the latter is not validated by economic stabilisation and progress towards banking union, the danger is that market volatility will return with a vengeance over the summer, as it did in 2012 and 2011.

More data was represented as follows:

  • Some 86% said a prolonged recession poses a high risk to the European credit markets, up from 69% in the last survey and an all-time high.

  • Survey respondents regarded inflation as unlikely, with only 9% of respondents ranking it as a high risk while 29% regard deflation as a high risk.

Fitch's quarterly investor survey was conducted between April 3 and May 7 and represents the views of managers of an estimated 8.6 trillion euros of fixed-income assets.

Filed under: 24/7 Wall St. Wire, Banking & Finance, Economy, International Markets