While most of the attention post-Brexit has been on the UK, we are far more concerned about Europe.  Markets and the economy operate in a feedback loop, and the performance of European banks relative to the stock market points to a fall in lending ahead in Europe.  Banking stocks provide a one year lead on lending growth in Europe.  The dire trading of banks will do little to improve the debt-deflationary dynamic at play in Europe.

img1Source: Bloomberg and Variant Perception

Likewise, the very poor performance of European equities points to lower growth ahead in Europe.  As you can see from the next chart, the returns of the Euro Stoxx 600 provides a six month lead on industrial production.  Lower prices in European stocks will yield bargains, but we foresee more pain ahead in Europe.

img2Source: Bloomberg and Variant Perception