24 Mar 2014
Revisiting the sustainability of positive EUR flows - Nomura
FXStreet (Barcelona) - Yujiro Goto, FX Strategist at Nomura, has analysed the recent dynamics of euro area assets held by non-residents to understand potential flows and expect the Euro to trade with resiliance in the near term.
Key Quotes
“We have not been surprised by the strong foreign equity inflows into the euro area so far this year, and we believe they will continue for the time being. We expect additional foreign inflows into the euro area equity market to reach about USD100-250bn, just to recover the euro area’s share to 2009’s level.”
“The amount may be smaller, after taking into consideration the decline in the euro area’s share in the global benchmark, but the share in the benchmark could also recover as in 2013. US TIC outstanding data suggest the momentum of inflows could start slowing into mid-year though. A recovery in foreign demand for peripheral bonds should also exert upside pressure on EUR.”
“US and Japanese investment in Italian and Spanish bond markets in Q4 2013 was at its highest since Q2 2006. If broader investors join this movement, its impact on EUR cannot be ignored, while the hedge ratio is likely higher than equity flows. The flow picture remains supportive for EUR for now, while the ECB has raised the bar for additional easing at its March meeting. We expect EUR to trade with more resilience for the time being.”
Key Quotes
“We have not been surprised by the strong foreign equity inflows into the euro area so far this year, and we believe they will continue for the time being. We expect additional foreign inflows into the euro area equity market to reach about USD100-250bn, just to recover the euro area’s share to 2009’s level.”
“The amount may be smaller, after taking into consideration the decline in the euro area’s share in the global benchmark, but the share in the benchmark could also recover as in 2013. US TIC outstanding data suggest the momentum of inflows could start slowing into mid-year though. A recovery in foreign demand for peripheral bonds should also exert upside pressure on EUR.”
“US and Japanese investment in Italian and Spanish bond markets in Q4 2013 was at its highest since Q2 2006. If broader investors join this movement, its impact on EUR cannot be ignored, while the hedge ratio is likely higher than equity flows. The flow picture remains supportive for EUR for now, while the ECB has raised the bar for additional easing at its March meeting. We expect EUR to trade with more resilience for the time being.”