The US stock market repriced in euros

Coming back to the US stock market and the euro currency, the issue is not merely that almost the entire rise of the market from the beginning of 2003 can be understood as an effect of the US dollar decline, but that the stock market itself has become effectively enslaved to the currency market. The chart below shows both the SPX index in US dollar (black) and the SPX re-priced in euro (more precisely, the SPX/XEU ratio, which is a good approximation).

Not only the two price series diverge dramatically from about March 2003, whereas they were closely matching each other earlier than that, but the short time fluctuations of the SPX re-priced in euros have rapidly decayed to insignificance. To measure such fluctuations I use the width of the Bollinger bands, that is the standard deviation of the prices over a period of time.
Relatively to price, the 60 day standard deviations of SPX and SPX/XEU are about 4% and 3%, respectively.




Categories: stock market, currencies, correlations