EUR Strength Drives Hot Money Into European Periphery

As US equity markets slide notably from overnight highs on the back of JPY carry unwinds, the USD weakness is the EUR's gain and the EURUSD pair pushing up towards 2 month highs near 1.3400. As the pool of global liquidity sloshes away (briefly) from Japan and the US, the dash-for-trash of what is working drives it into the highest-beta European assets. Banks and insurers rallied on the day across Europe. The best 4 equity markets across the EU were Greece (+2.5%), Portugal, Italy, and Spain with UK unch (as investors remain undecided on Carney's new deal) and all this amid a disappointing German data print. Spanish and Italian bond spreads compressed (of course) and notably US Treasuries are outperforming Bunds by around 4bps on the day.

EURUSD at 2-month highs, near 6-month highs...

and as that flow repatriates so the riskiest assets surge...

not an unusual pattern...the disconnect in April/May was when the BoJ started its idiocy - now we are back to the old new normal of strong EUR inflows means rising EU Stocks...

and where else better to put your money than 10Y Greek government bonds... sure they have 65% youth unemployment, sure there is no guarantee they will get a penny more from EU post-Merkel's re-election... but in the meantime you earn 9.6%... at 2 month highs...

Charts: Bloomberg