European Stocks Have Never, Ever Been This Cheap Relative To American Markets

European stocks are offering the biggest discount on record relative to U.S. peers, according to one metric.

Members of the Stoxx Europe 600 Index are trading at 1.8 times the value of their assets, almost half that of S&P 500 Index constituents, the largest gap since Bloomberg started tracking the data in 2002.

World-beating gains in U.S. equities since the bull market kicked off in 2009 has widened the distance between the two, while recent volatility has also rendered its derivatives the most expensive relative to Europe since August 2015"s China deval collapse...

However, it appears Europe"s macro surprise data is rolling over and catching down to US macro surprise data...

And perhaps worse still, EURUSD is rolling over (just as it did in 2013), ready to catch down to its rates-implied level, crushing USD-relative returns...

But of course, it"s what happens next here that really matters...

Yellen and Draghi next week in Jackson Hole may hint ath whether this is the end of the beginning or the beginning of the end.

The ECB's Balance Sheet Is Now The Size Of Japan's GDP

Yesterday was a landmark day for the ECB. First, the central bank disclosed that its CSPP, or corporate bond, holdings rose above €100Bn for the first time. As DB"s Jim Reids notes this morning, to put things in perspective, a similar market cap company would be the 18th largest in the Stoxx 600 and 42nd largest in the S&P 500. It"s also roughly equivalent to the annual national output of Kuwait - the 59th largest economy in the world as of 2016."

Assuming that the previously disclosed percentage of bonds purchased in the primary market, or directly from the company, has not changed since our report a month ago, this means that the price indiscriminate ECB has directly injected approximately $15 billion in various European corporate entities in exchange for bonds, bypassing any middlemen in the process.

As for the ECB"s other notable "achievement" according to the latest update, the ECB"s balance sheet now stands at €4.23 trillion, making it the largest central bank holding in the World. As Deutsche Bank notes, this is the same as the GDP of Japan (€4.3 trillion) - the 3rd biggest economy in the world and a decent distance ahead of Germany (€3.02tn) - the fourth largest.

The news takes place one month after another memorable event for central-planning took place, when both the ECB and BOJ balance sheet surpasses the size of the Federal Reserve"s.

Jim Reid"s conclusion conveys our sentiment too: "It"s staggering to think of it in those terms."

Too Far, Too Fast? Strategists Expect European Stocks To Tumble By Year-End

Equity strategists are cooling on the prospects for further gains in European stocks just as investors poured a record amount of money into the region’s equity funds...

After a French election victory for centrist Emmanuel Macron and analysts suggesting that optimism over better profits is largely priced in, forecasters now see fewer triggers for the rally to continue in 2017.

Equity strategists, “having been torched for their prior optimism in the past, might be cautious in continuing to call Europe up after a very good run,” saidMichael Ingram, a market strategist at BGC Partners in London.

“It’s difficult to identify any near-term catalysts for continued outperformance as most of the political tripwires appear to have been negotiated, easy monetary policy is priced in and the European earnings season is essentially done.”

As Bloomberg reports, the Euro Stoxx 50 Index of the biggest euro-area stocks will finish the year at 3,498, 3.8 percent lower than Friday’s close, according to the average in asurvey of 15 banks compiled by Bloomberg. For the Stoxx 600, nine banks expect the gauge to end the year 2.4 percent lower than Friday’s level, a mean of their predictions shows.

Euro Surges, Bunds Tumble On Report Draghi Considering Rate Hikes Prior To QE End

Update: Reuters chimes in with its own headline, saying the discussion was brief, without broad support.

•  SOME ECB RATE SETTERS RAISED POSSIBILITY OF RATE HIKES BEFORE END QE, DISCUSSION WAS BRIEF, WITHOUT BROAD SUPPORT - SOURCES

* * *

The EURUSD spiked, European stocks faded gains, and German Bund futures tumbled to session lows following B loomberg report that the ECB has discussed whether the central bank can hike rates before the end of QE.

As Bloomberg further adds, ECB policy makers considered the question of whether interest rates could rise before their bond-buying program comes to an end, and notes that the central bank"s Governing Council on March 9 "exchanged views on ways of communicating and sequencing an exit from unconventional stimulus."

That said, Bloomberg"s sources notes that the council didn’t discuss any specific scenario or timeline and hasn’t made any formal decisions on a strategy. An ECB spokesman declines to comment on the rumor. Bloomberg further adds that the ECB Governing Council currently “expects the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.”

While the report may be merely the latest trial balloon to gauge the market"s response, for the now the market is not taking chances, and has aggressively sold off the German bunds, while paring gains on the Stoxx 600 to only 0.2% on the day: Bund futures tumbled to session low of 159.10 on the news, sending the Bund yield to 0.48%, while Schatz futures likewise drop sharply and the Euribor strip steepens in expectation of future ECB rate hikes.

As to the mechanics of just how the ECB hikes rates while continuing to buy bonds, we eagerly look forward to the details.

As Le Pen Odds Surge; French Stock Market Risk Hits 5-Year High, Credit Risk Spikes

Marine Le Pen"s French election victory odds reached their highest level of the campaign overnight and it appears global investors are starting to panic-bid protection against the consequences for French stocks...

Oddschecker indicates Le Pen"s incessant rise in popularity...

And as Bloomberg notes, as the French prepare to choose their next president, investors are paying up to hedge against swings in the nation’s shares.

The cost of three-month options on the CAC 40 Index has rallied to a five-year high relative to those on the regional Euro Stoxx 50 Index.

The first round of elections will be on April 23 and the second on May 7... one wonders how much higher this "relative" risk can go before it spills over into something systemic... because French credit risk is now at its highest in 4 years...