Shorting Strategies Will Squeeze Bank Funding In Europe

Includes: FXE
by: Research Recap

Investors looking for security from European losses are rapidly running out of options, writes Oxford Analytica.

“Small safe-haven currencies such as the Norwegian krone will not be able to sustain the appreciation. Furthermore, the cost of credit-default swaps (CDS) and coverage on CDS indexes will rise rapidly, and traditional safe havens such as gold already look overvalued. This leaves the well travelled flight routes to US Treasuries and German bunds, which are overpriced and producing negative real returns. Meanwhile, funds for more traditional uses will dry up, and European economic performance will continue to worsen as a result.”

Investors are seeking security from European losses. With pressure on safe havens, some investment banks are recommending shorting strategies. These could have serious negative — if unintended — consequences for the European economy.