We are not bearish on the euro area economy overall. Growth is slowing, but from well above trend to slightly above trend. We see US tariffs and Brexit as rising risks to the auto sector, and we judge the German stock market to be the most exposed in such circumstances. The French stock market has a similar sectoral composition to Germany, but its consumer discretionary sector is not dominated by autos. In addition, it has a beta to the DAX around 1. By selling the DAX and buying the CAC we attempt to isolate the risk of tariffs without taking a negative view on the broader economy.
Trade closed on 15 August 2018 for a quick profit of 1%. Since the Trump-Juncker meeting in July 2018 the threat of US tariffs on European autos had diminished.