The Fed credit lending plan caused the market to sky-rocket yesterday, but today the dollar reached new lows. Some market reporters are saying that Europeans believe the plan will not work. That may be true, but misses the other news coming out of Europe.
What actually is going on is the strong industrial production numbers announced for the Euro-zone. Without having to resort to massive injections of central bank funds, the European economies look like they have decoupled from the US and will be able to continue at a good growth. The industrial production numbers came in at 3.8% which is significantly higher than what was expected at 2.6%. While down from the highs of 2006, the industrial production numbers are staying above the 3% market for the last year when looking at a six month moving average. The low with last month's number looks more like an outlier.
It is surprising, given the better economic conditions, that European stock indices are off much more than what is seen in the United States. The Eurostoxx index is off 17% versus 10% for the S&P 500. While many are discussing a decoupling story, there seems to be a hesitancy with putting more money with this view.
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