There is no stress in EU - says the data

The European markets did sell off this week on the move to a referendum in Greece, but many, myself included, were surprised by how muted the move was relative to the headlines. There was some contagion to other markets but again less than expected. Clearly, the capital controls are a new twist to the problem, but a referendum is not going to be a definitive event. We do have evidence for why the equity moves have been muted or at least we have data that supports the muted results. The ECB has constructed a composite financial stress indicator index which which they have been updating on a weekly basis. The last reading is from June 30th which includes data through the 26th of June.

The CISS index has five subcomponents and 15 variable that are used to construct the indicator. The systematic stress indicator is looking for  a single measure that affect all of the European economies. The indicator used are listed below.

We expect that the reading will increase but the size will not match the previous periods of contagion.

This weekly index does not have the most recent information but the levels of stress are no where near the levels seen in 2011 and 2012. Levels were higher in 2002-03. We may see an stark increase in the next reading but the overall tone is more subdued and does not suggest that the financial environment was in any danger close to the end of the  month.