Enis’s Macro Wrap – Rotation Out of U.S., Into Europe

by Enis October 15, 2012 7:33 am • Commentary

We’ve mentioned the idea of mutual fund managers rotating out of their big winners this year and rebalancing into the big losers (see Friday’s Macro Wrap).  It’s happening across regions, not just across sectors.

When I turned on my screens this morning, I first saw that Europe had bounced right after the open.  It’s trading up more than 1%.  My first thought was that SPX futures were likely indicated up around 0.75% or so, especially since the SPX has been down 5 of the last 6 days.  So I was surprised to see SPX futures indicated up only 0.35%.

We are seeing international funds rotate out of the U.S. into Europe.  In October, SPX futures are down 0.5%, while the SX5E, European index is up 2%.  The underperformance of the SPX is coinciding with strength in the Euro for the first time in a long while too.  Here is the chart of the SPX in Euro terms:



It is back to levels close to where it traded in June.  Meaning European investors in the SPX have seen limited gains since then, while European indices have had big rallies since the early summer.  European fund managers might finally be thinking that parking their equity allocation into the SPX is no longer a sure-fire way to outperform.

Markets overnight:

  • Active session, as SPX futures hit stops around 1420 shortly after the open on Sunday evening, dropping to 1416, but quickly recovering from there.  The Euro dropped to 1.2891 in quick fashion as well, but risk-on returned by the European open.
  • Asia ended mixed by the close, with all markets moving less than 1% in either direction
  • Europe rallied right from the open, trading up around 1% now.  SPX futures up 0.35%.
  • Commodities were also red right from the Sunday night session, but copper and oil have rallied back to close to flat.  Gold and silver still down 0.5%
  • The dollar and Treasuries slightly lower as well.  Empire Manufacturing and Retail Sales data comes out at 8:30 am today.