Citi: 5 Risk sentiment for EU

Wednesday, July 4

 

Last week’s EU summit did bring relief to the financial markets: risk currencies strengthened, European credit default swap spreads narrowed, and stocks rallied.
Amid the risk sentiment recovery, analysts at Citi came up with 5 threats which may shoot at any moment making the market slump.

The threats are:

1. Finland and the Netherlands obstruct the bailout.
2. More euro zone’s nations need external financing due to increasing borrowing costs.
3. The IMF says it won’t negotiate or renegotiate with Greece.
4. The ECB will fail to make the region’s economic growth pick up and the situation at debt markets stabilize (“In practice these would amount to little more than showing the flag – were the euro zone’s sovereign debt issues solvable via policy rate cuts, those would have been put in place long ago,” says Citigroup).
5. A gap is growing between bad economic data and more or less optimistic markets.

Indeed, there’s much to be aware of. Citi’s economist Steven Englander cited Calvin Coolidge, the 30th President of the United States: “If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.” However, the President didn’t give any advice on what to do about the tenth trouble.

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