Stock Markets Churning, Euro area weakness probably currency related.

Markets continue to churn, in a rather ugly fashion. The SP500 briefly broke below 1130 yesterday on poor volume and follow through was lacking. Elsewhere shares in EURO area countries have been moving lower over the past few days, however I stress EURO area as opposed to Europe, the UK index has not drifted off with European shares. This suggests that we may be seeing a reaction to the stronger EURO rather than anything more concrete.  The charts below emphasise this point. The top chart shows the German DAX future relative to the SP500 since the beginning of April, with the EURUSD FX chart directly below. Note how both indices dropped more or less in tandem through May, however towards the end of May, the DAX started to outperform the SP500, probably helped by the EURUSD weakness. This out-performance on the DAX has been maintained since then, however the recent EURO strength maybe the reason that over the past few days the out-performance of the DAX may be starting to lessen.

The next 2 charts show the EUROSTOXX 50 index and the UK FTSE index, note how the EUROSTOXX has been moving lower in recent days, whilst the FTSE has maintained recent levels. The third chart below shows the EURO FX rate versus the UK pound (GBP), the Euro has seen good recent strength here too. This backs up my view that the recent under-performance in EURO area stocks is probably more closely linked to Euro strength than anything else.