Growth is slow, not stagnant
The initial market reaction was a reflection of the concerns around the effectiveness of further loosening of monetary policy given the apparent lack of impact since the programme started in the first quarter of last year.
Whilst we acknowledge global growth forecasts over recent months have come under pressure, largely because of China (though inevitably Europe has not been immune), we would refute the idea that Europe is entering a deflationary environment and stagnant growth at this stage.
There has been an improvement in growth across the eurozone which we expect to continue.
Many of the recent surveys we have seen were carried out during the volatile period in the first part of this year and do not reflect the underlying gradual recovery we are seeing in Europe.
Markets across the board are susceptible to sentiment swings. Just a few weeks ago there was massive pessimism around excess inventory in the oil sector, only to witness over the last week or so optimism around declining US production.
Recent market moves suggest that China will avoid a hard landing, to the extent that we recently saw a 20% bounce in the iron ore price in one day.
The volatile short-term trading dynamics and sentiment are exacerbated by a lack of liquidity as market makers and the sell-side are squeezed by the regulator and onerous capital requirements.