Inflationary Shock May Hit European Stocks In 2017

Inflationary shock coming in Europe?

Over the last few years, investors have been hearing the word “deflation”. Perhaps so much so that investors may get caught flat-footed in particular regions.

Think Europe.

I think investors need to take a look at the chart below depicting the “Citi Inflationary Surprise Index” for the Eurozone. I have charted this versus the Euro Stoxx 50 Index.  Note that every time inflationary pressures surged significantly, it lead to equity weakness on the Euro Stoxx 50 chart.

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The chart below is sourced from Bloomberg.  You can see the Citi Inflation Surprise Index in the top panel. This is pitted against the Euro Stoxx 50 Index in the bottom panel.  Got inflation?

citi inflation surprise index vs euro stoxx 50 performance chart (March 17, 2017). Source: Bloomberg

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