Friday, April 26, 2013

Eurozone Economy and Equities Seemingly Disconnected

I wrote about this topic earlier this month and it remains perplexing. Eurozone economic indicators continue to come in under consensus expectations as reflected by the Citigroup Economic Surprise Index, which continues to decline and is now well below zero at -77. Yet in that time Eurozone equities have simply traversed sideways and even more recently have rallied by more than 5%.

Source: Bloomberg

Considering a longer-term view (below), it would appear that if anything it’s not the first time for Eurozone equities to rise in the face of continued disappointing economic data. But it would also appear that eventually equities smell the rot and likewise decline.

Source: Bloomberg

I would also point out in the above chart that 1) the Citigroup Economic Surprise Index bottomed in January 2009, two months before equities bottomed, and 2) the recent decline in the Citi index has been massive, plunging from +76 at the end of February to its current -77, further conveying severe unexpected trouble for economies in the region. One would expect investors to be more concerned and yet the Euro Stoxx Index suggests otherwise.

Note that it’s not as if the ECB is doing anything to support equities, with its balance sheet remaining in shrink mode:

Source: Bloomberg

I continue to scratch my head. Hmm, maybe this has something to do with it.

3 comments:

  1. I occasionally look at the CESI but have always found it difficult to correlate against market moves. Thanks for the charts as it shows just difficult it is to do this and also shows it's a very early indicator.

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  2. The economics leads for the passing our life in balance form, people from all over the world need some form of life passing in better form about top essay sites, the economics is the need Ford understanding up and downs of life. Every country faces the process of development and recession.

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