Eurozone: Different threats to the region’s financial markets in 2018 - Natixis

Patrick Artus, Research Analyst at Natixis, suggests that perhaps the euro zone will not face in 2018: An end to share buybacks in the United States or, therefore, a downward correction in share prices, a widening of credit spreads or spreads on bank bonds, an overshooting of long-term interest rates or a resurgence of political risk, but it is important to be aware of these different risks.

Key Quotes

“We set out to take stock of the potential threats to the euro zone’s financial markets in 2018:

  • A correction of the US equity market, spreading to European equities. It could result in particular from an end to share buybacks in the United States;
  • A correction of credit spreads, which are abnormally low in light of default risk. This correction could be triggered by the end of the ECB’s quantitative easing;
  • A strong reaction by bond investors to the beginning of the rise in long-term interest rates, causing this rise to accelerate. This is unlikely in a context of strong demand for risk-free bonds;
  • Difficulties for some banks due to a rise in risk premia on bank bonds;
  • And, of course, a resurgence of political risk in the euro zone (separatist temptations, Italian elections, difficulties implementing institutional progress, etc.).”

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