Harrison: The News is Worse Than Markets Would Have You Believe

Your Real Vision Daily Briefing for May 18, 2020

Real Vision Senior Editor Ash Bennington hosts Managing Editor Ed Harrison to make sense of a roaring day on Wall Street.

  • Good news on the US stimulus, European stimulus, and coronavirus fronts led to a roaring day on Wall Street, but in reality, the news was a lot more mixed.
  • The $500 billion virus relief program announced by France and Germany may create a new dynamic in the Eurozone and we could see a convergence of bunds and US treasuries as a result.
  • Banks in both Europe and the US continue to signal trouble ahead.

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Today saw extreme bullishness in US equity markets following Fed Chair Powell’s remarks, but despite the “do whatever it takes” sentiment he projected, there are still good reasons for investors to proceed with caution, Ed Harrison said during today’s Real Vision Daily Briefing.

He cited the fact that PNC sold its Blackrock stake as proof that there’s trouble ahead. It made the sale to ensure they would have enough capital to withstand what is to come. That fear for the US economy is not a bullish message and was completely overlooked in today’s business, Harrison said.

On a more positive note, the cooperation between France and Germany could create an entirely different dynamic in the Eurozone.

“The questions we have to ask ourselves as investors are A) is this for real B) what’s going to happen to asset markets as a result?” Harrison said.

The spread between bunds and US treasuries, which is already getting squeezed, will narrow even more if this is real, Harrison said, and he thinks we’ll eventually see a convergence of bunds and treasuries as a result. 

The $500 billion dollar relief package is a promising start, but banks in Europe are still showing signs of stress. Euro banks are trading at their lowest levels on price to book, which tells you that people don’t believe their book value will stay at the current levels because they’ll be taking lots of credit write downs. 

“That’s not a bullish message,” Harrison said.