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The European Central Bank’s (ECB) next meeting in mid-June could be crucial enough to decide the exit timeline of the ongoing QE policy, per the ECB’s Chief Economist. The bank currently has a policy of net asset purchases worth €30 billion per month until at least the end of September. ECB officials will meet on Jun 14 in Latvia, where they may discuss the possibilities of winding down bond-buying.
Per the chief economist Peter Praet, the ECB is satisfied with the uptick in inflation, which boosts the chances of a sooner-than-expected QE demise. Notably, the annual inflation rate in the Euro Area rose to 1.9% in May of 2018 from 1.2% in April and beat market expectations of 1.6%. A jump in oil prices is likely to have given a boost to the figure.
The ECB has a goal of having inflation close to 2%. Investors should note that deflationary worries have been spooking Euro zone for long, which is why the ECB embarked on the QE policy along with negative interest rates.
QE Taper in Cards, If Not Complete End After September?
The ECB launched its asset-buying program at the start of 2015 and extended the program by six more months to March 2017 at the end of the year. Then the bank announced in December 2016 that it would lower its bond-buying program to 60 billion euros a month from 80 billion from April but extended the program to December 2017.
Then again in October 2017, the ECB extended its asset-purchase program through September 2018 at a reduced rate of €30 billion. The ECB maintained that the policy could be extended, should there be any necessity (read: ECB's Dovish Taper Boosts These ETFs).
So, there is a high chance that the central bank would now wrap up the program by extending it beyond September but at a measured pace until year end. This is especially true given that the Euro zone economy has slowed this year and maybe in need for some more support after September. If this happens, investors can play the following ETFs.
Since financial stocks are likely to benefit from a rising rate environment, EUFN may gain ahead. The news pushed the yield on the 10-year German Bund considerably.
EUFN focuses on giving exposure to the financial sector in Europe. From a geographical perspective, it has high exposure to the U.K., Switzerland and France (read: ETFs to Gain/Lose if Italy Crisis Deepens).
Small Cap
Since small-cap stocks better reflect the domestic economy and are not hurt by negative currency translation like large-cap stocks are, small-cap ETFs like WisdomTree Europe SmallCap Dividend Fund (DFE - Free Report) ), SPDR EURO STOXX Small Cap ETF andWisdomTree Europe Domestic Economy ETF could emerge as solid picks.
Low Volatility
Now, the QE end can trigger a taper tantrum like what we saw in the United States in 2013. Thus, investors may tap iShares MSCI Europe Minimum Volatility ETF to wait out the volatility (see all European Equity ETFs here).
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Winning ETF Bets if ECB Ends QE This Year
The European Central Bank’s (ECB) next meeting in mid-June could be crucial enough to decide the exit timeline of the ongoing QE policy, per the ECB’s Chief Economist. The bank currently has a policy of net asset purchases worth €30 billion per month until at least the end of September. ECB officials will meet on Jun 14 in Latvia, where they may discuss the possibilities of winding down bond-buying.
Per the chief economist Peter Praet, the ECB is satisfied with the uptick in inflation, which boosts the chances of a sooner-than-expected QE demise. Notably, the annual inflation rate in the Euro Area rose to 1.9% in May of 2018 from 1.2% in April and beat market expectations of 1.6%. A jump in oil prices is likely to have given a boost to the figure.
The ECB has a goal of having inflation close to 2%. Investors should note that deflationary worries have been spooking Euro zone for long, which is why the ECB embarked on the QE policy along with negative interest rates.
QE Taper in Cards, If Not Complete End After September?
The ECB launched its asset-buying program at the start of 2015 and extended the program by six more months to March 2017 at the end of the year. Then the bank announced in December 2016 that it would lower its bond-buying program to 60 billion euros a month from 80 billion from April but extended the program to December 2017.
Then again in October 2017, the ECB extended its asset-purchase program through September 2018 at a reduced rate of €30 billion. The ECB maintained that the policy could be extended, should there be any necessity (read: ECB's Dovish Taper Boosts These ETFs).
So, there is a high chance that the central bank would now wrap up the program by extending it beyond September but at a measured pace until year end. This is especially true given that the Euro zone economy has slowed this year and maybe in need for some more support after September. If this happens, investors can play the following ETFs.
ETFs to Play if the ECB Ends QE Soon
Euro
CurrencyShares Euro ETF (FXE - Free Report)
A stoppage in easy money flow should boost the euro, making FXE an intriguing pick.
Financials
iShares MSCI Europe Financials ETF (EUFN - Free Report)
Since financial stocks are likely to benefit from a rising rate environment, EUFN may gain ahead. The news pushed the yield on the 10-year German Bund considerably.
EUFN focuses on giving exposure to the financial sector in Europe. From a geographical perspective, it has high exposure to the U.K., Switzerland and France (read: ETFs to Gain/Lose if Italy Crisis Deepens).
Small Cap
Since small-cap stocks better reflect the domestic economy and are not hurt by negative currency translation like large-cap stocks are, small-cap ETFs like WisdomTree Europe SmallCap Dividend Fund (DFE - Free Report) ), SPDR EURO STOXX Small Cap ETF andWisdomTree Europe Domestic Economy ETF could emerge as solid picks.
Low Volatility
Now, the QE end can trigger a taper tantrum like what we saw in the United States in 2013. Thus, investors may tap iShares MSCI Europe Minimum Volatility ETF to wait out the volatility (see all European Equity ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>