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Cameron Brandt, EPFR Director of Research, reflects on how he sees October unfolding:

While investors will continue to keep a weather eye on the outcomes and predictions for Brazil’s presidential election and the run-in to the US mid-term elections, the focus in October will be squarely on Europe.

  • While there is no single flash-point – although Italy’s budget brinksmanship may soon qualify – Europe’s current political landscape has more than the usual number of countries where the fire risk is elevated. The governments in Germany, Sweden, the UK and France are all under varying degrees of stress that, in the worst-case scenario, could trigger the departure of German Chancellor Angela Merkel or pave the way for the Labour Party to take power in the UK.
  • When the European Central Bank (ECB) meets during the final week of October it is currently expected to halve its asset buying program and confirm its goal of winding the program up after its mid-December meeting. That, if it plays out in line with the ECB’s guidance, will leave Eurozone debt markets going into 2019 without a key source of demand. Markets are still hoping the ECB will respond to slowing growth by extending the program into the New Year. But historically the ECB has erred on the side of tightening too much.
  • The issue of what happens without ECB support may come to a head sooner than expected, and do so not in Italy (which everyone is watching) but in Greece. EPFR flow data is signaling acute investor discomfort with the country’s prospects as it emerges from its third bailout program. Greece has garnered little attention over the past two years, with markets – until now – comfortable that the outburst of populism that brought the anti-establishment Syriza party to power has been contained. But, since mid-May, investors have redeemed over 15% of the assets held by Greece Equity Funds.

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