Eurozone bond and equity markets are expected to continue to perform well. Good economic day and easy monetary conditions remain very supportive.
The recent strength of the euro indicated as much but the eurozone economy appears to be back on its feet. Economic data from the turn of the year has been fairly consistently ahead of expectations. The Citigroup indicator of economic surprises in the eurozone has pushed back to index levels of 70 suggesting significant positive surprises from the economic data.
Two particular economic data points caught our eye last week; firstly the eurozone industrial confidence data was some of the strongest seen in 10 years; secondly lending in the region rose at the fast pace in this recovery. The improvement in industrial confidence was broad across sectors. The €34 billion increase in lending in March was across households and non financial corporates.
Last week’s message from the ECB was also positive for eurozone bond and equities markets with ECB President Mario Draghi setting out their commitment to maintaining easy money conditions for the foreseeable future.
The news flow remains supportive of eurozone asset prices. Equities have had a decent run of late but that should continue with valuations of eurozone equities remaining at a significant discount to the US. The ECB’s commitment to easy money conditions helps to anchor eurozone country by country government bond yields at their recent levels. We would be surprised to see any meaningful change in ECB monetary policy for the balance of the year.