Wall Street has been setting records, but that hasn’t carried over to Europe thanks to a strengthening currency. The Euro Stoxx 600 has traded sideways since peaking in early May as the euro has risen beyond $1.09 towards $1.19 over that period.
For much of the year a rising euro and rallying share prices reflected a stronger-than-expected recovery in the eurozone economy. As Société Générale notes: “Since mid-May, the correlation has changed: euro strengthening has become a headwind for the Euro Stoxx index.” The bank noted that a stronger currency has hit export sectors such as healthcare, staples and capital goods, as well as oil-linked sectors.
Indeed, recent data showing a drop in German exports for June was nearly the largest decline seen in two years.
While fund flows and many analysts still favour eurozone equities over the US, share markets for the continent remain stuck in a consolidation phase. Firmer eurozone growth and robust earnings for the second quarter — with a blended year-on-year gain of 14.2 per cent for the Stoxx 600 seen — are, for now, being overshadowed by expectations of further euro strength.
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