Not so fast Euro-bulls. The potency of global central planners is slowly disintegrating and Euro-area growth is slowing.
Notwithstanding today's bounce, that's the quick take on why you should be, at least, cautious. Here's analysis from Hedgeye CEO Keith McCullough in a note to subscribers this morning:
"The belief system needs the transmission mechanism (Burning Euros) in play to “reflate” European stocks. So, “off the highs” in yesterday’s epic big bang EUR/USD ramp, Euro -0.7% gives birth to a new hope that doing whatever it takes is going to arrest an almost 3 year European economic expansion from slowing."
As McCullough points out, the ECB is increasingly hamstrung, unable to devalue the euro beyond key levels. That is in no way bullish for European stocks.
So here is the important question. "Is Draghi's latest dance enough to arrest the cascading of the Eurozone economy from its multi-year cycle peak?," Hedgeye Senior Macro analyst Darius Dale wrote this morning.
Here's the chart with all that RED (aka declining) data.
As Draghi went all-in on monetary cowbell yesterday, it actually raised the probability of a surprise Fed rate hike. Take a look at the chart below from Dale mapping the Bloomberg Economic Surprise Index against 10-year forward Fed funds future implied yield. Notice the recent spike in this reading:
Equity investors have also been touting the recent spate of positive U.S. economic data as supportive of their bullish narratives. But that's a short-term mirage within a long-term downward trend, as Dale points out.
Here's A compendium of RED (read: Bad) U.S. data:
We have been noting that the Fed's overly-optimistic forecast remains a substantial risk to macro markets. "Will the Fed read into sequential upticks across U.S. data and extrapolate #Quad2 into their economic outlook?," Dale asks.
Here's the key takeaway: