Here's Proof That The Euro Crisis Has Barely Touched US Markets

A point we’ve been trying to make for the last few weeks is that at least with regards to US equity markets, the crisis in Europe is overhyped. It IS a big deal, and it is true that US markets have been shaky, but it’s not clear that there’s any connection.

Instead, the ongoing weakness in China — induced by tightening and inflation fears — has been a much bigger driver.

Here’s a really simple way to view this. The following chart compares the S&P 500, vs. the Euro vs. AUDJPY (Aussie dollar vs. Japanese Yen). AUDJPY is a decent proxy for the waves emanating out of China, since the aussie dollar benefits from strong China growth, and since it’s pretty well disconnected from what’s happening in Europe and the US (and all the debate surrounding QE).

So what do we see? The S&P is very tightly connected to AUDJPY, and not so much with EURUSD ever since the beginning of the month. The euro story is significant, but for US equities, it’s just not there yet.


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