The European sovereign problem is increasingly becoming a France problem
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Meanwhile, today's Eurostat report shows eurozone industrial production contracted another 1.1% yoy. Europe’s energy shock is becoming an industrial competitiveness crisis. European diesel prices are approaching $200 per barrel, while eurozone industrial production has contracted by another 1.1% year on year. Germany’s industrial output is already almost 10% below its 2021 level. Another energy shock is hitting an industrial base with limited room to absorb it. The transmission mechanism is clear: → Higher transportation costs. → Higher production costs. → Renewed inflationary pressure. But pricing power has limits. When businesses can no longer pass higher costs on to customers, margins compress. Production is reduced. Investment is postponed. More factories become economically unviable. This is the risk of another stagflationary shock: weaker activity alongside higher prices. For the ECB, the dilemma is increasingly difficult. Raising rates could contain inflation, but would also weaken demand, increase sovereign financing pressures and accelerate industrial decline. Europe faces a growing risk that a temporary energy shock leaves permanent damage to its industrial capacity. Source: Lukas Ekwueme @ekwufinance Bloomberg
Source: Bloomberg, Lisa Abramowicz @lisaabramowicz1 on X
The problem is everyone else. In an illustrative exercise, MS has the high-quality hyperscalers issuing $400 billion at 7% next year, which takes coverage from 30.7x to a still-comfortable 11.9x. But give Oracle and SpaceX $120 billion at 8.5%, and their combined coverage collapses from 4.0x to just 1.8x. Source: zerohedge

