Central Bank EUR Reserves Plunge

IMF data released earlier this week revealed the largest ever quarterly decline in reserves held in euros.  The more than 8% QoQ drop in holdings of the euro area's common currency easily surpassed the 6% fall back in 3Q2008 and coincides with one of the more severe quarterly falls in the EURUSD exchange rate that we have seen in some time.



Simply put: central banks (presumably a non-trivial source of support) are turning down the opportunity to purchase the euro at significantly cheaper prices.  So, where to from here?

Down Gaps On the Rise

As one measure of market volatility, we calculate the cumulative number of stocks in the MSCI World Index that open at least 2% higher (or lower) than the previous close over a 65-day time period.  Extremes in the number of gaps often occur in conjunction with inflection points in the market.  As you can see in the following chart, we find that a very low number of gaps coincides with market highs while the number of gaps tends to spike during significant declines.



For the most part, down gaps reached decade-long lows in October 2014 and have been on the rise ever since.  The significant uptick in North America is particularly interesting--especially in light of what is, relatively speaking, a more resilient uptrend in the market.





Emerging World stocks appear to be no exception.

Health Care Stocks Pick Up in 2015 Where They Left Off in 2014

Across two of the three regions in the MSCI World Index, the health care sector has been the best performer over the last year.  In North America, measured in USD, health care stocks are up 29.13% over the last year, while they were up 5.96% in Europe and 2.53% in Asia/Pacific.

MSCI North America


MSCI Europe


MSCI Asia/Pacific


The run of relative outperformance continued in a big way today, with health care stocks falling only about a third as much as the overall index.  All ten sectors of the MSCI World index fell today, but health care was only down 65bps compared to the 2.05% drop in the MSCI World Index.



North American and European health care stocks were down 62bps and 73bps respectively, while Asia/Pacific health care stocks were up 67bps.







So far, 2015 is simply an extension of the trends that prevailed in 2014.  Growth counter-cyclicals, such as health care and consumer staples, continue to outperform the broader stock market.