UBS House View Daily

Thought of the day

28.07 - Happy Draghi-versary

Five years ago this week, ECB president Mario Draghi delivered his pivotal "whatever it takes" speech to stem the Eurozone sovereign debt crisis. At the time, Spanish and Italian sovereign yield spreads relative to Germany were at 6.3% and 5.3% respectively, and EURUSD had declined to 1.215. Recovery has not been quick, with 2017 rates still at "crisis management levels," the balance sheet at EUR 4.24trn, Eurozone unemployment at 9.5%, and the euro only this week rising above USD 1.17.

But, while the Eurozone has not returned to full health, considerable progress is being made:

  • The Eurozone has stabilized, with Greece returning to the bond market this week for the first time in three years, and 10-year Spain-Germany and Italy-Germany spreads narrowing to 1.1% and 1.9% respectively.
  • The economic recovery is gaining momentum, with Germany's Ifo business sentiment index marking three successive record highs in the last three months, and Spain's unemployment rate dropping to an eight-year low on 27 July.
  • The euro is gaining strength, with EURUSD appreciating by 11% this year, to its highest level since December 2014.

So we see reason for confidence in the recovery, and remain overweight Eurozone equities versus UK stocks. We continue to prefer the euro against both the US dollar and the Swiss franc.

Chart of the day

Happy Draghi-versary

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