Calamities happen in financial markets, and usually when investors least expect and are least prepared for it. In the euro area, weak growth in the past six months and the inability of the ECB's measures to turn asset markets arounds have led investors to, once again, revisit their sovereign debt crisis playbooks.
This is understandable, but also now raises a fundamental question. If we are about to tumble into round 2 (or 3?) of the sovereign debt crisis, Eurozone bears may still prevail holding on to the recent trend in equities. But if we are not, the only trade that currently makes sense is to buy equities and short benchmark bonds in the euro area. Narrow money growth and ECB easing would indicate this to be a good bet, but the lack of sovereign QE amid increasingly nervous price action in peripheral bonds point to investors staying firmly on their shorts.
Place your bets!
Picture is courtesey of Pantheon Macroeconomics and has also been posted on Twitter.