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European markets had a gigantic day.
Italy gained 2.9%. France rallied 3.5%. Germany gained 2.4%.
What's behind the big gains?
There seem to be three big stories.
One of them is new comments from European Commission President José Manuel Barroso about limits to austerity. There's an idea afoot that the austerity movement is crumbling, and these latest comments underscore the idea that maybe some growth-related policies will come.
We emailed with Frederik Ducrozet of Credit Agricole, who writes:
I think expected ECB easing due to German/core weakness is one reason behind the rally indeed although it can hardly be the only one. Rather, investors are probably still digesting the long-term implications of the BoJ move, including its ramifications for other central banks, in a liquidity-fuelled environment leaving everyone searching for yields. We have seen some Japanese/Asian investors returning to Europe and the periphery, and together with a still very solid base of local bond investors in Italy and Spain may explain why those two countries in particular are benefiting the most without any good fundamental news (except the less uncertain Italian situation, maybe).
The notion that a bad German manufacturing report would be a good thing is a tragic.
The European economy has been in horrible shape for years, but pro-growth ideas are incredibly few and far between. And although the ECB deserves credit for putting a halt to the European sovereign debt crisis, the ECB hasn't done much else on the growth front, in part because of strong German opposition to action. Now the thinking is that with German's own economy going into the toilet, the ECB might do something. So basically it took Germany getting sucked into the vortex of a crappy Eurozone economy for anyone to have any hope that institutions would do anything to promote growth. That's a totally awful state of affairs.
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