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Friday, February 13, 2015

Lower Euro...Higher European Stocks

via Bloomberg

European stocks are rallying on speculation Mario Draghi’s policies will help improve economic growth, with a weaker euro boosting corporate profits.
The CHART OF THE DAY shows that the Euro Stoxx 50 Index and the region’s currency extended their moves in opposite directions, with the correlation between the two assets near an 11-year low. The equity gauge has rallied 8.6 percent this year as European Central Bank President Draghi announced a 1.1 trillion euro ($1.2 trillion) asset-purchase plan, pushing the euro down more than 5.5 percent.
Economists estimate the euro area will grow this year at the fastest pace since 2011, while export-reliant companies say they will benefit from the currency’s decline. Drugmaker Sanofi forecast the euro weakening may boost earnings as much as 5 percent. Carmaker Renault SA, which gets more than half of its sales from western Europe, jumped to a seven-year high after projecting higher deliveries and revenue in 2015.

As I have mentioned in several previous posts the growth of ETFs limked to the overall European and German stock market but hedged against a falling Euro allow one to profit from both of the trends in the graph below.

Here is a graph of HEWG the hedged Germany ETF and HEDJ the hedged Euro zone ETF
Below that is the Euro dollar exchange rate as can be seen the top chart matches the green line in the above chart and the lower chart the green line.

HEDJ currency hedged Europe (black) HEWG currency hedged Germany (brown)
US/Euro exchange rate

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