The hare and the tortoise

Headline data suggest the European pandemic experience entailed far more economic damage than seen in the US. Indeed, US GDP has all but recovered its losses while the Eurozone remains around 5% smaller statistically. But this is a misleading picture and can be attributed to the policy responses. Factoring these in, the Eurozone has a strong recovery story which should be subject to less volatility than the US. It reaffirms our narrative that the Fed is underestimating risks and catching up to those is going to be a positive for the dollar. We remain short euro versus the US dollar, overweight Eurozone equities. We retain shorts in Bunds and BTPs.

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