Deutsche FX Daily – Europeans have enough : FXWW

From the FXWW Chatroom – The latest balance of payments data for the Eurozone continues to paint a
structurally bullish flow picture for the euro. But it takes some excavation to see it.
At first sight, the data for June released on Friday look ominous. Net equity inflows
dried up entirely in the second quarter, after running at about €25bn a month
since the French election (Figure 1). At the same time, net fixed income outflows
stabilized at about €30bn a month. This is still far less than the roughly €60bn a
month that left the Eurozone as recently as the fourth quarter of last year, but it
does appear as though the slowdown in bond outflows has stalled.
A closer look, however, suggests that the structural deceleration in fixed income
outflows continued. Over the last years, net outflows have been dominated
by Eurozone residents buying foreign assets, with foreign selling of Eurozone
assets being more auxiliary. Since early 2015, Europeans have net bought a
staggering €1.4trn in foreign fixed income assets, whilst foreigners have net sold
‘only’ €300bn of Eurozone instruments. The ‘Euroglut’ was driven by European
investors’ appetite for higher yields as the ECB drove them out of home markets.
These structural European outflows, however, averaging at more than €30bn a
month since early 2015, continued to slow in the second quarter to as little as
€5bn a month (Figure 2). The reason why net outflows remained constant at €30bn
is that foreigners sold €30bn of Eurozone fixed income in May and another €40bn
in June. Europeans, by contrast, bought just €1bn worth of foreign fixed income
instruments in May. Hence, it was only foreign capital that fled Eurozone fixed
income during the periphery sell-off.
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