Get your umbrella because the message from Christine Lagarde today was that it's going to be an ugly economy in Europe for awhile.
She touted a mild recession but also strongly hinted at rates rising above 3% and that's into an economy that's struggling with high energy costs.
In time, it will also be struggling with a high debt burden. Italian 10-year yields rose 25 bps today to 4.11% and it's going to be tough for anywhere in the eurozone to bring down deficits until energy is sorted out. The timeline for that is indeterminate but if the solution is more LNG, then it won't be until 2025 until there's any significant global supply.
All else equal, higher rates are good for a currency but given the choice between US or European growth, it's not a difficult one, even if US valuations are higher. Of course, those aren't the only two choices and there's every reason for money to flow into China with the reopening.
With that, the euro is back to pre-ECB levels.
From here, it's back to watching the weather and natural gas drawdowns. TTF prices are up 2% today at 134-euros.
