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Citi FX strategist Steven Englander has sent out a fascinating “trip notes” letter based on a recent trip to Italy, France, Switzerland, Germany, and Israel.His first observation from German is critical:
Meeting German investors before the ECB meeting, I was struck how optimistic they were with respect to the euro, even when they had been quite negative a few months ago. The game changer for them was the support of PM Merkel and FM Schaueble for the ECB program, and Draghi’s assertiveness, which had isolated the Bundesbank. They were similarly optimistic that the Constitutional Court would basically ok German ESM participation although possibly with some conditions.
If you’re looking for one concrete difference between the new ECB bond buying scheme (called OMT) and the old scheme (called SMP) it’s this: The seriousness and assertiveness of the parties involved. The fact that formerly pessimistic investors are now strikingly optimistic is a major change.
This dovetails with a story in German newspaper FAZ about German investors rushing into periphery stocks.
Englander had one other interesting observation:
The fiscal cliff is a subject of much deeper interest in Europe than in the US.
This is actually the second time we’ve heard this (though it’s possible that it was Englander the first time as well). In the US there does seem to be a sense that things always work out at the last second. Perhaps the rest of the world doesn’t grasp that so innately.
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