ECB’s de Guindos: Equity valuations are high, credit spreads out of sync with risk

• Equity valuations are high, credit spreads out of sync with risk.
• US downgrade was discounted by markets.
• Eurozone bond yields have decoupled from US, spread contained.
• Markets are complacent but that can change.

Credit spreads widened a bit recently but it didn’t trigger any notable pullback in European equities. There might be some complacency for sure. For example, the market got too much fixated on growth risk which is now fine, but the inflation risk is being underestimated. And no one is paying attention.

This article was written by Giuseppe Dellamotta at www.forexlive.com.