STOCK indices have been positively correlated to movements in euro-dollar for such a long time that it is easy to forget that this wasn’t always the case. There is growing evidence that this relationship is breaking down – equities are struggling to rally, whether the euro is falling or rising.

This seems to be because investors are refocusing on the US and betting that Europe’s problems are neither containable nor unique. After all, it isn’t only Europe that is having problems with its banks. On Friday, the Federal Deposit Insurance Corporation (FDIC) closed another three regional banks, taking the total for this year to 86. It closed down 140 in 2009; 25 in 2008 and three in 2007. The FDIC has 775 banks on its problem list – around 10 per cent of the industry. The US regional banks are suffering for the same reason as the Spanish cajas – the fall-out from the collapse in the countries’ property markets.

This is why recent US housing data is so worrying. Following bigger-than-expected falls in housing starts and building permits, last week saw the release of grim new and existing home sales figures. The weak numbers coincided with the expiry of the homebuyer tax credit in April, which suggests that the market will now double-dip without more stimulus.

Real estate is crucial to the US’s financial health. Not only is a house the most important asset for most people, but it also has been a source of growth in consumer spending thanks to rising prices and equity withdrawal. Alongside this, housing provides employment through construction and DIY and boosts sales of household appliances and furnishings.

At an institutional level, the effects of a second property slump won’t be limited to regional banks. Finances at the individual state and local government level are also grim as plummeting tax revenues have taken their toll. With Congress balking at Barack Obama’s plea for a $50bn lifeline to state and local government, it’s likely to get a whole lot worse.