Europe Lagging

Feels like 2014 and 2015 again.  Europe and Japan have topped out as the US marches higher, led by tech stocks.  Even during a positive year in 2014, there were sizeable dips, one in January, one in August and one in October.  While January's dip was led by US, those in August and October were led by Europe, which topped out way before the US did.  Europe has signaled a saturation of global risk appetite for much of this 8 year bull market.

This time, Europe topped out in May, right after the good news pop from the French elections, and is down about 6% while the US is up about 4% during that time period.  That is Europe lagging the US by 10% over 2 months.

In much the same way that the yen has become a funding currency, so has the euro.  When you have negative interest rates, traders like to short that currency against one that offers a higher interest rate.  So the yen carry trade has morphed into a yen/euro carry trade.  Both are stronger lately.  While a dovish Yellen has masked the symptoms of this FX move, it still hasn't taken the pressure off these carry trades.

Remember back in August 24, 2015, the euro and yen both spiked higher on that infamous SPX limit down day.

By the way, I was watching CNBC Fast Money on Friday and they were universally bullish on tech stocks going into earnings this week.  It feels like a setup to pullback post tech earnings.