21 Nov 2013
Flash: Several Euro cracks appearing - Nomura
FXstreet.com (Barcelona) - According to Jens Nordvig, FX Strategist at Nomura, the Euro uptrend is starting to look tired, with several cracks appearing.
Key Quotes
"Beyond the price action, which obviously could be a false signal, there are a couple of specific points worth noting."
"First, the market initially did not give much weight to signals from the ECB that additional monetary easing steps are being considered. The tone of Draghi’s press conference and ECB Chief Economist Peter Praet’s interview with the WSJ both emphasized the notion that the ECB still have several tools at its disposal to fight deflation. These types of signals could continue to put downward pressure on forward rates in months to come."
Second, recent flow information, including from the ECB’s balance of payment data for September, has shown weaker equity inflows into the Eurozone than our real-time proxies had suggested. Inflows were a moderate EUR6bn in September, and net equity flows (taking into account outflows) were actually negative in September (after a clear positive trend since May).
"Third, key European equity indices have shown weakening relative performance lately. Since mid-October, the Spanish, Italian and French indices have underperformed relative to the S&P500, in a clear departure from the trend in place from July to October (the German market is the exception here). All told, this is potentially a further negative signal for equity flow dynamics into the Eurozone, which had become self-reinforcing in line with bullish sentiment in most of the period since July."
"Fourth, consensus expectations for Eurozone growth, which had been generally drifting higher since April, now appear to be turning (based on surprise indices and consensus expectations for 2013). We think this trend could have further to run, given that 1% growth is expected for 2014. This may be hard to achieve given remaining structural challenges, still unsupportive fiscal policy, and the lagged effect of Euro appreciation over the last 12 months (on a TWI basis)."
Key Quotes
"Beyond the price action, which obviously could be a false signal, there are a couple of specific points worth noting."
"First, the market initially did not give much weight to signals from the ECB that additional monetary easing steps are being considered. The tone of Draghi’s press conference and ECB Chief Economist Peter Praet’s interview with the WSJ both emphasized the notion that the ECB still have several tools at its disposal to fight deflation. These types of signals could continue to put downward pressure on forward rates in months to come."
Second, recent flow information, including from the ECB’s balance of payment data for September, has shown weaker equity inflows into the Eurozone than our real-time proxies had suggested. Inflows were a moderate EUR6bn in September, and net equity flows (taking into account outflows) were actually negative in September (after a clear positive trend since May).
"Third, key European equity indices have shown weakening relative performance lately. Since mid-October, the Spanish, Italian and French indices have underperformed relative to the S&P500, in a clear departure from the trend in place from July to October (the German market is the exception here). All told, this is potentially a further negative signal for equity flow dynamics into the Eurozone, which had become self-reinforcing in line with bullish sentiment in most of the period since July."
"Fourth, consensus expectations for Eurozone growth, which had been generally drifting higher since April, now appear to be turning (based on surprise indices and consensus expectations for 2013). We think this trend could have further to run, given that 1% growth is expected for 2014. This may be hard to achieve given remaining structural challenges, still unsupportive fiscal policy, and the lagged effect of Euro appreciation over the last 12 months (on a TWI basis)."