Perhaps we can finally dismiss the decoupling myths and hopes and dreams as nothing but the natural economic lags we were so clear about during the first quarter elation this year. As is clear from Citigroup's Economic Surprise Indices, Europe and the US are once again in sync from a macro-economic cycle perspective (both in terms of missed expectations and deteriorating data). What is more worrisome is the very close similarities between the last year or so evolution of the macro picture in the US and Europe with what occurred in 2008 (as is clear from the red and green ovals). We heard again and again then (as now) that markets would decouple but as the markets began to roll-over they reinforced one another in the downward spiral and we know how that ended.
Notice the US weakness (red arrow) accompanied by EUR stability (orange arrow) which then gives way with the two economies appearing to decouple (green oval) only to recouple (red oval) as deterioration becomes self-reinforcing after the hope of the previous decouple fades...
Chart: Bloomberg

