GLOBAL EQUITY MARKETS – May 6, 2017
All eyes will be on the French election this weekend. The two candidates will face off in the second round on May 7. European equities have been strong since the first round election results. Two benchmark indices on Euro Stoxx 50 and Euro Stoxx 600 can put the European equity performance into perspective. Both charts show that uptrends have been intact for some time. Euro Stoxx 50 index broke out of its multi-month base in December 2016 and now very close to reaching its possible price target around 3,285 levels. The price target for the Euro Stoxx 50 Index is calculated by taking the width of the multi-month consolidation and adding it to the breakout point. 3,285-3,300 area is also the upper boundary of the parallel trend channel. On the other hand Euro Stoxx 600 Index is very close to its multi-year strong horizontal resistance at 400 levels. Both indices will face strong technical resistance in the following trading days/weeks. Performance around these strong technical resistance will shed more light on the long-term direction of the European equity performance.
GLOBAL EQUITY MARKETS – April 29, 2017
The first round of the 2017 French presidential election was held on 23 April 2017. As no candidate won a majority, a run-off election between the top two candidates, Emmanuel Macron of En Marche! and Marine Le Pen of the National Front (FN), will be held on 7 May 2017. Global equity markets reacted positively after centrist candidate Emmanuel Macron won the first round of the weekend’s French presidential election. European equities have been performing poorly since the beginning of the global financial crash in 2008. Any positive political and economic development is likely to help European equities to catch up in the relative performance. Though, European equities might need more catalyst than an election result to reverse long-term relationships.
Two charts below show the massive under performance of the European equities vs. the U.S. equities over the past 9 years. Both the relative performance ratio between MSCI EUROPE vs. MSCI U.S. and EUROSTOXX 600 Index vs. S&P 500 Index shows a multi-year downtrend. This long-term relationship is something that we should keep a close eye on, as any major turnaround in European indices performance will result in more breakout opportunities in the European equities.
Relative performance ratio between the two indices is converted into an index to better visualize the change in value in percentage terms. 1.00 is an index value of 100. 0.42 is an index value of 42. The chart shows the index losing more than half of its value from the highest level in 2008. In other words MSCI EUROPE underperformed MSCI USA by 58% over the past 9 years. Data used for MSCI EUROPE and MSCI USA are price index in U.S. Dollar.
