FRENCH VOTE SENDS GLOBAL STOCKS HIGHER -- FRANCE LEADS EUROPEAN RALLY -- EUROZONE ISHARES REACH THREE-YEAR HIGH -- A STRONGER EURO WOULD BOOST EUROZONE PERFORMANCE -- U.S. STOCKS FOLLOW EUROPE HIGHER AS SAFE HAVENS WEAKEN

FRANCE LEADS EUROPE HIGHER... French stocks are leading big gains in eurozone stocks. A strong Euro is giving an even bigger boost to eurozone ETFs. Chart 1 shows MSCI France iShares (EWQ) surging more than 5% to the highest level in three years. That compares with a 4% gain in the French 40 CAC Index. The difference between the two is the 1.2% gain in the Euro. My last message explained that European ETFs are priced in U.S. dollars, while cash markets are quoted in the local currency. When the euro is rising (as it is today), a eurozone ETF (quoted in the weaker dollar) will always outpace the local stock market (priced in the stronger euro). The same is true of other European markets. German iShares (EWG) are up more than 4%, while the German DAX is up 3%. [British stocks are also higher, but are a relative laggards. British iShares (EWU) are up 1.7%].

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Chart 1

EUROZONE ISHARES REACH THREE-YEAR HIGH... My last message showed the MSCI Eurozone iShares (EZU) outpacing the U.S this year. That's true again today. Chart 2 shows the EZU surging 4.5% to the highest level since spring 2014. That's a pretty strong looking chart. By contrast, the S&P 500 is up a much smaller 1%. That makes the eurozone the world's strongest region. Europe iShares (IEV) are also rising, but by a smaller margin (3.2%). That's because Britain is its biggest holding. Eurozone stock ETFs are getting help from a rising euro.

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Chart 2

EURO NEARS FIVE MONTH HIGH... Chart 3 shows the euro gapping more than 1% higher today against the dollar, and challenging its 200-day average. It's also close to a five-month high. The euro has a long way to go to reverse its long-term downtrend against the dollar. Its recent performance, however, is the strongest in a year. And its longer-range chart offers some encouragement. The monthly bars in Chart 4 show the euro having fallen 30% against the dollar to the lowest level in fourteen years. Its 14-month RSI line, however, shows the euro reaching the most oversold level (below 30) since 2000. That prior oversold condition preceded a major uptrend in the euro. The RSI line bottomed in 2015 and has been rising since then. The positive divergence between the monthly RSI line and the price bars suggests that the euro may be be bottoming. And that could have a positive influence on eurozone performance.

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Chart 3

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Chart 4

EURO HAS BIG IMPACT ON EUROZONE PERFORMANCE... The blue line in Chart 5 is a "ratio" of Eurozone iShares (EZU) divided by the S&P 500. The green area shows the direction of the euro against the dollar. It seems clear that the two move in the same direction. Euro strength between 2003 and 2008 coincided with a stronger eurozone versus the SPX. A falling euro since 2008 has resulted in eurozone underperformce. That's why a stronger euro would be a positive sign for that region. As already explained, that would be especially true of eurozone stock ETFs (like the EZU) that are quoted in dollars. They would get an added boost from a stronger common currency.

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Chart 5

CLARIFICATION ... As long as we're on the subject of European currencies, I'd like to clarify my previous message posted last Thursday on the effect of the falling British pound on British stocks. I was trying to make the point that a plunging British pound since last June's Brexit vote had a bearish effect on British iShares (EWU) relative to the FTSE Index. The green area in Chart 6 shows the plunge in the pound after the June Brexit vote. The red line is a "ratio" of the EWU divided by the FTSE. My message didn't make that clear enough. During the ten months since the Brexit vote, the FTSE gained 16% (including today) while United Kingdom iShares (EWU) rose less than 4%. The difference between the two stock indexes is a -13% drop in the pound. That's the point I was trying to make. It demonstrates again the importance of currency direction on foreign stock iShares. And why American investors need to be aware of that when investing abroad. By contrast, a stronger euro is boosting the performance of eurozone stock iShares relative to their country stock indexes -- and to the rest of the world.

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Chart 6

RISK IS BACK ON ... U.S. stocks are following Europe higher. Economically-sensitive sectors are rising while safe havens are falling. A jump in Treasury yields is boosting financial stocks while hurting rate sensitive utilities and REITS. Gold and the yen are also dropping. Small caps and transports are also leading the rally. All in all, a good day for risk assets and a bad day for safe havens.