Pro Perspectives 11/11/20

November 11, 2020

The flood gates have opened on vaccines — after the election, predictably. 

Let's take a look at what this visibility, on a fully opening and functioning global economy, has done to some very beaten down European stock markets.

First, here's a look at Spain …

Spanish stocks are up 24% since the end of October.  But it would take another 30% rise just to get back to the Feb, pre-covid levels. 

Next, here's a look at Italy …

Italian stocks are up 19% since the end of October. It would take another 23% to regain pre-covid levels.  And as you can see in the chart, this stock market is (still) worth less than half of its pre-Global Financial Crisis value (mid 2007). 

Like U.S. stocks, these European stock markets are being juiced by a bazooka of monetary and fiscal stimulus.  An extra catalyst for European stocks, will be a falling dollar.  And as you can see in this next chart, the big trendline of the past nine years has broken. 

Add to this, since the failure of the Bretton-Woods system, the dollar has traded in six distinct cycles – spanning 7.6 years on average.  Based on the performance and duration of past cycles, the current bear cycle is more about four years in (with plenty of downside). 

If we see a break of 1.20 in the euro (more dollar weakness), that will be an invitation for global capital to plow into these European stock markets.  You win on the stocks, and you win on the currency.