What Is Next For European Stock Markets?
Michael Grogan | May 06, 2015 04:05PM ET
While a weak euro had initially provided a boon to European stock markets, a strong US dollar appears to have out warmed its welcome, with the Euro having appreciated from a level of 1.058 in mid-April to a level of 1.1146 at the time of writing. Additionally, the German DAX stock market index has depreciated by over 8% over the same period to a level of 11350.15. Similarly, the French CAC 40 index is down by 5%, and the IBEX 35 in Spain has also dropped by 5%.
Indeed, a big driver behind higher stock returns across Europe was a weak currency. With concerns of overvaluation across U.S. equity markets, low interest rates across Europe not only facilitated access to cheap credit for equity investment, but a weaker euro also allowed international investors the opportunity to buy European stocks at cheaper rates than would be possible otherwise. All else being equal, if the Euro strengthens then we can expect stock markets to retract and this is what has been happening over the past month.
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