A Short View of the Eurozone?Latest liquidity data show deteriorating Eurozone conditions. This isn’t good news, but it is consistent with our view that the Eurozone economies are mid-cycle and that the rise of the Euro is likely to impede economic growth from around mid-2018 onwards. The data picture is consistent across the Eurozone economies, with Germany leading the slide. Perhaps the puzzle is why the Euro continues to gain strength against the US dollar? Does this tell us something more worrisome about the US dollar’s long-term trend?
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The Big(ger) Question for the Rest of 2018It is not trade tensions and not the Fed that ultimately matter for investors over the rest of 2018, but China and, specifically, the actions of the PBoC (People’s Bank). In short, what we really need to know is whether the PBoC will be easing or tightening this year. Latest data, now largely undistorted by the recent Lunar New Year, suggests that there is a moderate temporary tightening bias. Chinese monetary tightening proved a wrecking ball for investors in 2008 and again in 2015, but monetary easing from early 2016 boosted World Markets. We figure PBoC policy will return to a moderately loose stance through the rest of 2018. This matters.