Consider it a sign of progress: The euro lately has stopped dragging the U.S. stock market down with it.
The currency dropped about 3% against the dollar in the fourth quarter, and yet the S&P 500 gained 11% in its best quarterly performance since 2009. The trend has persisted into the new year: The euro has fallen roughly another 1.5% to about $1.27, while U.S. stocks have added a similar amount.
This is a marked turn from the days in which each new bout of negative news regarding Europe's debt crisis would drill the Continent's currency and flip markets globally into risk-off mode. Indeed, Société Générale strategist Sebastian Galy calls it a "regime shift" and highlights the flip-side of this development: Stocks and the dollar have been rising together, an occurrence that has been rare since the halcyon days of the late 1990s.
This points to a new phase in Europe's debt crisis: a period of acceptance after the initial shock, denial and disbelief. Investors now are resigned to the reality of a European recession and the likelihood of losses on holdings of sovereign debt from Greece and perhaps other European nations. "The market is pretty well-priced for solutions to not be quick in coming," says Deutsche Bank strategist Alan Ruskin.
The euro has been falling not so much on immediate bad news but on weaker long-run fundamentals. This, in the absence of a full euro meltdown, is a positive for stocks. It reflects the European Central Bank's stepped-up policy easing, and the expectation it will do more to support markets. It also reflects the stronger tone of U.S. data lately that has dialed back expectations for more dollar-weakening action from the Federal Reserve.
Ultimately, a weaker euro is good for Europe's growth prospects. Even if strong dollar drags on America's, for global stability it might be a price worth paying.
Source: http://online.wsj.com/article/SB10001424052970203436904577151071176144572.html?mod=WSJ_article_MoreIn_HeardontheStreet
No comments:
Post a Comment