We have updated our privacy policy and terms & conditions. Find out more here.
5
 

The Decline In Europe Risk Premium Is Not Sustainable

By Market OverviewNov 12, 2012 05:55AM GMT Add a Comment
 
AA
+
-

Investors continue to shift attention from Europe to the US, as the fiscal cliff concerns are now center-stage (see discussion). The equity implied volatility risk premium of the Euro Stoxx 50 (SX5E) to that of the S&P500 (SPX) has come off sharply recently.

SX5E-SPX vol ratio
SX5E-SPX vol ratio

This is somewhat surprising because Europe is likely to be impacted by the US fiscal cliff economic shock as much as the US, possibly more. The EU member nations' companies are far more vulnerable to a further global slowdown (even if it originates in the US) than the US corporate sector.

CS: We think that a fiscal cliff-induced growth shock, while negative for the US economy, could prove even worse for Europe. The current macroeconomic picture is one of cyclical stabilization appearing to be under way in the US, compared with a still fragile euro area, where recent data releases have revealed further weakness for the core [see discussion], making substantial deterioration highly likely in the event that extra stress is added to the mix by an external shock.

Indeed, CS expects this ratio to move back up, as the Europe risk premium returns.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

 

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

EU Stoxx50
 
 
 
Are you sure you want to delete this chart?
 
 
 
Are you sure you want to delete this chart?
 
 
 

Successfully Reported

Thank you. This comment has been flagged for a moderator.
_touchLoadingMsg