#Euro Zone # Switzerland # Geneva # Rome # Economic Crisis # Paris # London # Swiss Franc
By Alexander Tecle Geneva, Switzerland
A Tale of Two Euros!!
While visiting Europe this week! I’ve met with numerous client’s expressing the same concerns. Why has the EU monetary unit weakened against the USD? Why are the Eurozone equity markets drastically underperforming the US Equity Markets? Why are Euro Zone interest rates so low and the U.S. much higher? It seems like their family businesses are doing better, but why isn’t it reflected in the growth of their personal net worth? My explanation is to them is a that Eurozone business confidence has slowed since the onset of the Trade War between U.S. and the rest of the world. Paradoxically, the same headlines of the Trade War has caused widespread jubilation and growth momentum within the U.S. markets. In fact, the spread between the growth rates in the U.S. and the Eurozone are the largest since 2014. Add to this fact that Europe has seen unprecedented risks to the stability of their banking system due in part by the collapse of the Turkish Lira and to the added strain on Turkish companies to pay back Euro denominated Turkish debt. The contagion was most recently a concern to the stability of Italian banks since many of them were thought to have held Turkish debt on their balance sheets. This created a huge spike in the yields of Italian debt to 3.01%, which also means that prices of Italian debt have fallen. To put things into perspective, the only country with a higher debt yield is Greece, which has since recovered from one of the worst and longest recession to hit a Eurozone country in history and is yielding 4.49% on their 10-yr bond. Conversely, the German 10-yr bond is yields are slightly positive yields around 35bps or .35% and the Swiss 10-yr bond is yielding -14 bps or -.14 %. Many of my clients hold some of their liquid assets in both UK. And Swiss depository institutions, which invest into their respective governments debt. On the flipside of the coin, Italy’s unemployment rate rose to 10.9% from 10.7% in June. Among people aged less than 25 years, the jobless rate rose to 32.6% from 32.2%. I was in Rome and saw it myself. High rates of youth unemployment have fueled a rise in support for the antiestablishment parties that comprise the new government. The eurozone economy entered 2018 on a high, having racked up its most rapid expansion in a decade during 2017. However, growth slowed sharply in the first three months of this year. The key risks to the economic stability of the Eurozone are a continued divergence between of economic growth of Eurozone countries and the United States, continued unravelling of Brexit, Labor Relation issues in France and Germany, and the NeverEnding Story of the Italian Debt Crisis! My last answer and recommendation to my clients was to divest and diversify more of their family’s wealth into a broadly diversified basket of U.S. equities and Bonds and away from their perils of the Eurozone economic outcome. Don’t keep all of your eggs in one continent!