No current positions in Europe
Final February Services PMI figures for select Eurozone countries were released today. As the table and chart below show, there was a notable contraction in the month-over-month figures. In our work we’ve warned about recent unfounded optimism in Europe.
First, our most immediate concern is that the Private Sector Involvement (PSI) deal to haircut Greek debt holders does not receive sufficient participation (especially since the ECB was exempt from taking a loss on about €50 billion of Greek bonds it exchanged for new, longer maturity securities), which will invalidate the debt reduction schedules agreed upon by Troika, the European commission, and individual country parliaments, which will leave the market back to square one on the Greek mess.
Second, not only may we see additional downside revisions to sovereign debt and deficit levels (last week Spain announced that its 2011 budget deficit reached 8.5% of GDP versus the original target of 6.0%), but due to austerity there may well be a longer tail of slow growth than the Street is forecasting.
Finally, we keep front and center that Eurocrats will fight for their own job security in supporting the broken union of uneven countries at all costs.
Keith has selectively traded around European positions in the Hedgeye Virtual Portfolio based on our price sensitive macro model, however we continue to reiterate that we largely do not want to be involved in the risk imbedded in indecision of the next Eurocrat action.