Of Beats and Betas
On Monday UBS Equity Research upgraded Europe (ex-UK) equities to neutral from underweight, reflecting a less negative outlook on macro factors, valuations and client positioning. In terms of asset market performance convergence, a steady wave of allocation rotation into the Eurozone represents a risk to our negative-euro view, especially in light of the recent FOMC decision and softer US data. In addition, these flows also undermine the structural argument that the dollar’s is reverting to risk status. The market may be following beats over beta at present, but we would state two points of caution: firstly, the equity market may already be lagging FX markets in reflecting Eurozone improvement; secondly, the allocation vs. FX relationship is hardly uniform for all dollar-pairs, not even within G10.
Read the full report: UBS