ECB Under Pressure as Euro Soars

Societe Generale analysts Ciaran O’Hagan and Vincent Chaigneau look at the ECB’s options in the context of the surprise volte-face by the Fed on monetary stimulus tapering. With a previous track record of peripheral friendly policies guised under nationalistic rhetoric, Angela Merkel’s new coalition government is expected to instill more such reforms over the next 15 months, but in the near term the dovish Fed and ECB justify risk-on, euro area compression trades.

Short term tightening

The Fed’s action could lead to short term tightening of spreads due to higher corporate debt issuance, but the analysts...