CAC40, DAX30, STOXX sound very sweet to the ears of optimistic investors. After an excellent year 2013 and a mixed year 2014, 2015 took off with a supersonic bang. Star among the stars, the DAX30 skyrocketed nearly 18 percent in 2 months instead of a mere 2.3 percent in 2014 after a jump of 23 percent in 2013. The massive quantitative easing (QE) started by the ECB 2 days ago has been the main engine behind the brake-less European financial markets.
It’s so wonderful that it blinded the price each European taxpayer will have to pay for it without any guarantee that the QE will bring the desired outcome. In addition here is the comeback of economic growth, long-awaited since 2008 and the sovereign debt crisis in 2011. A mere 2 percent is enough to delight both politicians and the financial markets. Yet it is barely enough to sustain the ailing and sluggish European economy at its current level. This suggests that the market has yielded again to one of its bad habits: celebrating the positives and ignoring the negatives.
Indeed what can be negative when the majority agreed, contrary to what it said when a quasi-correction occurred in October 2014, that Europe is “the market to be” in 2015. The euro crisis is not over. The showdown between the Eurogroup and Greece, even though the latter will likely be defeated, is the visible tip of a very deep political crisis at the core of which, ignored by politicians, has been melting a huge magma of popular anger whose explosion could happen anytime. In that case, the euro would likely be swept out and the European economy would plunge into the unknown.
Add the crisis in Ukraine, the acrimonious relations between the European Union and Russia, the Islamic terrorist threat, and the cocktail served to investors will ultimately taste very bitter. Icing on the glass, latest economic data has revealed a more serious than expected slowdown of China’s economy. The markets took it as a temporary episode although the fundamentals should encourage them to more caution.
A respiration on European markets would be sane whereas an ongoing bullish trend at the pace recorded since the beginning of the year would be a catalyst for a correction as hard as sudden.