Global investors are taking a European excursion. This year, European stocks are flying high. The EMU MSCI (in euros) is up 19.0% YTD, well ahead of the 1.5% gain in theUS MSCI. Of course, this divergence has been fueled by the 12.6% YTD plunge in the euro.
The currency is down 24% from last year’s high of $1.39 to $1.06. In US dollars, the EMU MSCI is up only 4.1% YTD, and is actually down 6.8% y/y. As a result, there has been a rush to Eurozone ETFs that are hedged to the euro. There’s already chatter that the euro will fall below parity with the dollar and retest its record low since it was introduced on January 1, 1999 of $0.83 on October 25, 2000. Investors are clearly betting that currency devaluation will boost earnings and stock prices in the Eurozone as it has in Japan.
While the weaker euro is providing some lift to the region’s economy, the pace of economic expansion remains slow. Manufacturing orders rose 2.5% m/m (2.3% y/y) during December. Domestic orders remain relatively flat, as they have been since mid-2012. However, foreign orders to both Eurozone and non-Eurozone customers are robust, with the former rising to the best pace since April 2008 while the latter is at a record high. Industrial production fell 0.1% m/m during January. It was up only 1.2% y/y. It remains relatively flat, as it has been since mid-2012.
Today's Morning Briefing: European Excursion. (1) Hot zone. (2) Taking a Spanish break during a working vacation. (3) Rush to Eurozone euro-hedged ETFs. (4) Will devaluation boost earnings in Eurozone as it did in Japan? (5) Latest orders and production data still showing lackluster recovery in Eurozone. (6) P/E-led rally as earnings estimates remain depressed in Eurozone. (7) Greeks heading for a “Grexident?” (8) US production soft patch: The weather or the dollar? (9) Earnings soft patch: oil and the dollar. (10) Forward earnings diverging a bit by market cap.
