The morning session in London today – amidst mixed euro area data flow – kept to the general theme of tighter EMU bond spreads and a buoyant EUR alive and well. Generally speaking, it remains the case that the building market consensus concerning the desire for a weaker EUR by the ECB is not being met by the one thing which could actually sustainably soften the currency: wider spreads. Presently, the biggest fear we have for our weak EUR forecasts – particularly for the remainder of the quarter – relates to the fact that through tighter spreads and the effects of global capital flows, France, Spain and Italy collectively (and perhaps, indirectly, Germany through eventual positive macro-macroeconomic spillover) may be getting pulled artificially higher by Anglo-Saxon Keynesian-like fluctuations (or, perhaps, Keynesianism on steroids). If there is one thing we should have taken with us throughout the last decade or more, it’s that Keynesianism wins votes.
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