Europe's managed to put together some gains over the past few sessions, but it was still a down November versus the big post-election rally in the U.S. November's action widened an already large gap between the two markets, with the S&P 500 now higher by 8.8% YTD versus the Stoxx 50's (NYSEARCA:FEZ) 4.6% decline.
The reasons aren't news: Listless economy, struggling banking system, Brexit vote, Spanish vote, Italian referendum.
A snapshot of valuations, though, suggests maybe it's time to allocate a bit more money to EU equities. The Stoxx 600 trades at 14.2 estimated earnings, roughly 15% lower than that of the S&P 500 - the widest gap since 2009.
It's not just valuations, says SocGen's Alan Mudie. Europe, he says, is more levered to what he believes is an improving global economy. That was a curse in a slow 2016, but will be of great benefit in 2017.
The Stoxx 50 (NYSEARCA:FEZ) shed 0.6% today, bringing its weekly loss to just under 4%. Nervousness ahead of next week's U.S. election makes for as good of an excuse as any, but there was also this week's U.K. court ruling which threatens to delay Brexit.
One might think a delay (possibly ultimately leading to a postponement) would be good for Europe, but an argument could also be made it just adds to the uncertainty.
While the vast majority of watchers hadn't expected any policy changes today, many had anticipated some movement towards expanding or extending the bank's QE program, which is slated to end early next year.
Flat on the session moments ago, the euro is now higher by 0.5% vs. the dollar. The Stoxx 50 has turned lower by 0.25%.
European stocks are looking to record their sixth straight day of gains.
The Stoxx 600 Index is up 0.60% at last check, with modest gains across the continent.
The FTSE 100 Index saw its first +7000 opening in 16 months after investors placed their bets on which U.K. companies will benefit from a lower pound.
Also in the background is renewed confidence in Deutsche Bank (NYSE:DB) from the banking community on its ability to weather its problems, including positive comments last night from JPMorgan CEO Jamie Dimon on CNBC.
Deutsche Bank is lower by 6% after a German media report said Angela Merkel would not support a bailout for the struggling lender (having provided bailout upon bailout for Greece, it's hard to believe Berlin wouldn't come to the aid of its largest lender).
The Stoxx 50 (NYSEARCA:FEZ) is lower by 1.4%, led by a 1.65% decline for Germnay's Dax (NYSEARCA:EWG). Should the Stoxx 50 decline hold, it would be the worst performance for the gauge since early July.
European stock funds have now experienced outflows every week for more than six months, according to EPFR Global, beating the previous 27-week run set during the financial crisis. It translates into $86B of outflows this year vs. $123B of inflows recorded in 2015.
Scorecard: The Stoxx 600 is lower by 6.1% YTD vs. a 6.2% advance for the S&P 500. Particularly troublesome, the Euro Stoxx Banks Index is down 25% this year vs. about no change for the ((U.S.)) KBW Bank Index .
Brexit, trouble in Italy, and lame economic conditions across the Continent make for convenient excuses to sell, but hey, the ECB last year launched and this year doubled down on its QE program.
"Monetary easing is no longer enough,” says Deutsche. “The scope for structural upside for European equities on the back of a further central-bank-sponsored reduction in fixed-income spreads is limited.”
European stock markets have been in quiet retreat all week, and today's 1% decline in the Stoxx 50 (NYSEARCA:FEZ) puts that index lower by 2.7% for the week.
Leading to the downside today is Italy's (NYSEARCA:EWI) 2.3% loss, followed by Spain (NYSEARCA:EWP), down 1.4%.
The biggest news of note is a report suggesting the Brexit could come a lot sooner than previously thought. It's sent the pound nicely lower vs. the euro, and could be accounting for the softness in European shares (the FTSE is down just 0.2%).
Germany (NYSEARCA:EWG) is down 0.6%, and France (NYSEARCA:EWQ) 1%.
Brexit fears make an easy culprit, but the Stoxx 50 today is higher than it was prior to the late June vote (and roughly flat on the year).
Among those losing money is the $11.7B Vanguard FTSE Europe ETF (NYSEARCA:VGK), which saw outflows of $1.5B during the two months, and $2.6B YTD. Nearly $1.4B in June and July and $5B YTD exited the $8.7B iShares MSCI Eurozone ETF (BATS:EZU).
Faring worst though, is the $9.8B WisdomTree Europe Hedged Equity Fund (NYSEARCA:HEDJ), with outflows of nearly $6.3B YTD as the euro has refused to weaken (it's actually stronger vs. the dollar this year).
As for returns HEDJ is actually in positive territory this year, up 1.7%. The other two funds have suffered minor losses.
While expecting the eurozone economy to continue to move forward at a moderate pace, risks remain to the downside, in part thanks to the Brexit.
Asked about the unrelenting bear market in the stock prices of the EU's banks, Draghi says it's "of some significance" to policy makers because it raises the lenders' cost of capital, meaning lending becomes less profitable, meaning less lending. As for bank solvency, he's not too concerned, saying they're in much better shape than they were headed into the financial crisis.
The euro (NYSEARCA:FXE) has bounced around a bit, but is currently back to flat on the session at $1.1017. The Stoxx 50 (NYSEARCA:FEZ) initially dipped hard as Draghi began his press conference, but has returned to a loss of just 0.3%.
Cable (NYSEARCA:FXB) is lower by 1.65% today to $1.3061 - taking out by a decent margin the panicky lows set following the shock Brexit vote. Alongside that move vs. the dollar, the pound has also tumbled to nearly a three-year low against the euro (NYSEARCA:FXE).
It's leading to interesting action in equities, with the FTSE 100 (NYSEARCA:EWU) cruising along to a modest gain today, while Europe's Stoxx 50 (NYSEARCA:FEZ) tumbles 1.5%, led by a 1.6% decline in German (NYSEARCA:EWG).
The Bank of England's Mark Carney late last week more or less promised a rate cut this summer, and hinted at more QE, if necessary.
A flattish session is turning into another nice move higher after Bank of England Governor Mark Carney more or less promised a rate cut this summer, and hinted at more QE, if necessary.
Up only modestly ahead of his speech, the Stoxx 50 (NYSEARCA:FEZ) closed higher by 1.1%, led by the FTSE's 2.3% advance. Germany (NYSEARCA:EWG) gained 0.7%, France (NYSEARCA:EWQ) 1%, Spain (NYSEARCA:EWP) 0.7%, and Italy (NYSEARCA:EWI) 1.6%.
The S&P 500 (NYSEARCA:SPY) and DJIA (NYSEARCA:DIA) are now each higher by 1%, and Nasdaq (NASDAQ:QQQ) by 0.85%.
Roughly $365M has flowed into European stock ETFs since the Brexit vote, putting them on pace for their first week of inflows since mid-February, according to Markit. It's not a ton of money considering $130B in AUM across the 50 largest European stock ETFs, but an inflow's an inflow.
Much of the new money is targeting Germany, with the iShares MSCI EMU ETF (BATS:EZU) pulling in $284M - six of the fund's top holdings are German companies. Another $153M has gone into the iShares MSCI Germany ETF (NYSEARCA:EWG).
Meanwhile, $371M has exited the WisdomTree (NASDAQ:WETF) Europe Hedged Equity Fund (NYSEARCA:HEDJ) - this despite the euro's weakness vs. the dollar since the vote.