The €, which had been on a steady rise vs the US$ since spending time at around the $1.20 level two years ago, has been sliding again, after peaking at $1.39 in May.

Several related reasons:

–anemic economic growth, which has conjured up in investors’ minds the specter of deflation and begun to evoke comparisons of the EU with 1990s Japan

–political troubles with Russia and Ukraine, which have created higher uncertainty and lower trade flows, and

–further cuts in interest rates by the ECB to address the persistent economic weakness.  Today’s include a reduction in the equivalent of the Fed Funds rate from 0.15% to 0.05%, and in increase in the penalty fee for keeping deposits with the ECB (instead of lending out the money) from 0.1% to 0.2%.

The important thing for equity investors to note is that the financial markets are reacting to the bad economic developments by selling the currency rather than by selling €-denominated stocks and bonds.  The latter two have been rising in € terms, rather than falling.  The decline against the $ and £ has been about 6% since the peak in May, and about 4% against the yuan.

The currency decline will likely end up being a much larger spur to economic growth than the interest rate cut, which is all about numbers that are basically zero already.  But currency declines rearrange the focus of growth, as well as promoting growth overall.  Export-oriented and import-competing industries are relative winners: purely domestic companies, like utilities, are relative losers.   Typically, too, the currency decline comes in advance of the positive equity reaction.

So, I think it’s time to look at Continental Europe-based multinationals again.  This “good” news doesn’t apply, of course, to their UK-based counterparts, since sterling has been steady as a rock against the dollar recently.

The flip side of this coin is that US- or UK-based multinationals that have large businesses on the Continent have lost a significant amount of their near-term allure.