Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Cheer up, Europe.

European stocks were whipsawed Thursday by an unexpected slump in Chinese exports. Add to that the drain from a record 36 weeks of equity fund outflows , and the Euro Stoxx 600 is now looking at a third week of losses.

European stocks took a nasty tumble on Thursday after an unexpected slide in Chinese exports raised concerns on the strength of the world's second-biggest economy.
Source: Bloomberg
Intraday times are displayed in ET.

While there's plenty to fret about, there's no need to be quite so glum. The Fed, the ECB, and the U.S. electorate are at hand. 

The Federal Reserve could never admit it, but they would never raise rates ahead of such a contentious presidential election. The Federal Open Market Committee minutes published Wednesday -- showing an increase was a "close call" for "several" policymakers last month -- just means that December is all the more likely, and that's where investors are putting their money.

Almost There
The odds of a Fed rate increase in December have climbed above 50% and are still rising, according to prices in federal funds futures contracts.
Source: Bloomberg

With questions swirling around big issues such as oil prices, Brexit, Europe's perennial sovereign and banking problems, and a slew of important elections around the continent, this is clarity investors desperately need. After all, for the FOMC to hike they'll have to be pretty confident the economy is on a sound footing. If the world's largest economy is picking up steam, surely Europe's in line for the good kind of contagion.

And it does seem as if Yellen is driving the ship, with the rest of the FOMC content to follow her steer. That sign of strong leadership is a bonus.  

The European Central Bank looks ready to play its part. Officials are examining a range of measures to broaden bond purchases, such as allowing heavier weightings in certain markets than current guidelines permit. The ECB knows Europe needs more help. Mario Draghi is doing his best to help banks along, and even though there's talk of tapering, the central bank as a whole doesn't seem to be there yet.

Furthermore, the U.S. presidential race, a source of anxiety for the past year, looks to be resolving into a Hillary Clinton win. Political stability can be a boon for riskier assets, and Clinton would be the ultimate continuity candidate. As Donald Trump's campaign falters, a big fear factor should be dissolving.

Of course, there are still plenty of landmines for the European investor. Italian banks are a fine example of a sector that should be treated with enormous caution.

Italian banks have reliably underperformed broader European equities this year as investors remain unconvinced that all risks have been addressed.
Source: Bloomberg

Yet the dearth of bulls is puzzling. With an ever-supportive central bank, a more-confident Fed and the prospect of some sanity in the U.S., it looks like the market is pricing in too much risk. Such sustained outflows surely create an opportunity. Funds should take heed. Those underweight Europe could struggle to catch up if the continent outperforms. 

Most major European equity indexes are in the red so far this year, unlike their American cousins. Anything less than the worst-case scenario materializing could translate into a relief rally by the end of the year. Happy new year, everyone.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. According to Bank of America Merrill Lynch strategists, citing EPFR Global data.

To contact the author of this story:
Marcus Ashworth in London at

To contact the editor responsible for this story:
Jennifer Ryan at