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Those who hoped for a new set of stimulus from the European Central Bank (ECB) must have been disappointed as ECB president Mario Draghi did not walk that route in the latest meeting held on September 8.
The ECB did not extend the timeline of current bond buying beyond March 2017, expand the measure of stimulus, and talk about purchasing stocks. Instead, the ECB remained focused on the execution of the current program of monthly asset purchases of 80 billion euros.
Draghi also expressed hopes about the negative deposit rate policy, which is presently at negative 0.4%. Lending rate and the benchmark refinancing rate were maintained at 0.25% and zero percent, respectively.
If this was not enough, Draghi discarded accusations that the negative-rates policy is hampering banks’ profitability. He rather added that “favorable financing conditions and improvements in the demand outlook and in corporate profitability continue to promote a recovery in investment.”
Growth Projections
Making minor changes to its forward guidance, the ECB hinted that it expects key interest rates to stay at extremely low levels “for an extended period of time and well past the horizon of the net asset purchases.”
Going forward, the ECB sees the Euro zone economy expanding at a modest but firm clip. Plus, the fiscal policy in the Euro area is likely to be slightly “expansionary in 2016 and to turn broadly neutral in 2017 and 2018.”
The ECB now sees “annual real GDP increasing by 1.7% in 2016, by 1.6% in 2017 and by 1.6% in 2018.” Compared with the June 2016 projections, the guidance for real GDP growth for both 2017 and 2018 was cut from 1.7% while 2016’s GDP growth forecast was upped from 1.6%.
The organization now forecast annual HICP inflation at 0.2% in 2016, 1.2% in 2017 (down from earlier outlook of 1.3%) and 1.6% in 2018. Inflation forecasts for 2016 and 2018 are in line with the June estimate. The rate is well below the central bank’s target of 2%. Notably, the Euro zone economy fell short of ECB’s inflation goal for more than three years and will not likely reach that level even in 2018.
Market Impact
In the absence of ECB’s further accommodative actions, euro gained strength, offering over 0.1% gains on CurrencyShares Euro ETF (FXE). Global stocks were moderate with a tilt toward negative sentiments as the ECB stayed put.
All in all, the Euro zone with subdued growth and inflationary backdrop has managed to stay afloat at the current level. However, research houses like BNP Paribas think that “asset purchases will have to continue beyond March 2017 -- but it seems too many of the council want to delay the decisions over what to buy and for how long.”
Like several analysts, we also believe that the ECB is just taking time to see the course of economic progress and understand the full-impact of Brexit, before committing on further stimulus addition (read: Europe After Brexit: 5 Keys to Investing with ETFs).
So, investors can definitely play the Euro zone economy at the current level, if they become a little picky. Below we highlight a few ETFs, which added considerable gains on September 8 defying apparent gloom.
ETFS Diversified-Factor Developed Europe Index Fund – Up 2.47%
The fund looks to track the scientific beta developed Europe multi-beta multi-strategy equal weight index. U.K. has the largest weight (26.78%), followed by France (14.24%) and Switzerland (11.03%). Investors should note that some positive economic data points recently favored U.K. and France investing.
MSCI Eurozone High Dividend Yield Hedged Equity ETF – Up 2.41%
The fund is a great destination for dividend seekers as it yields about 3.89% annually. Also, the fund takes care of fluctuations between the value of the U.S. dollar and the euro (read: 5 Undervalued ETFs for Dividend Lovers).
First Trust Eurozone AlphaDEX ETF (FEUZ - Free Report) – Up 1.36%
The fund has a tilt toward Germany (26.2%) and France (24.1%). The underlying index of the fund picks stocks on the basis of both growth factors and value factors.
iShares MSCI United Kingdom Small-Cap ETF (EWUS - Free Report) – Up 1.32%
Since the U.K. economy has showed resilience lately, this small-cap U.K. ETF should be in focus assmaller capitalization stocks better reflect the domestic economic picture (read: UK ETFs in Focus As the Economy Defies Brexit Fears).
iShares Currency Hedged MSCI Spain ETF – Up 1.29%
This fund is focused on Spain. The economy is on an improving track with its GDP growing for 12 successive quarters. Unemployment, though extremely high at 20%, has declined to almost a six-year low. All these gave the fund a boost lately.
O'Shares FTSE Europe Quality Dividend Hedged ETF – Up 1.18%
The fund gives exposure to stocks with high quality, low volatility and solid dividend yield. The fund yields about 5.39% annually (see all European ETFs here).
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Dull ECB Meeting No Problem for These Europe ETFs
Those who hoped for a new set of stimulus from the European Central Bank (ECB) must have been disappointed as ECB president Mario Draghi did not walk that route in the latest meeting held on September 8.
The ECB did not extend the timeline of current bond buying beyond March 2017, expand the measure of stimulus, and talk about purchasing stocks. Instead, the ECB remained focused on the execution of the current program of monthly asset purchases of 80 billion euros.
Draghi also expressed hopes about the negative deposit rate policy, which is presently at negative 0.4%. Lending rate and the benchmark refinancing rate were maintained at 0.25% and zero percent, respectively.
If this was not enough, Draghi discarded accusations that the negative-rates policy is hampering banks’ profitability. He rather added that “favorable financing conditions and improvements in the demand outlook and in corporate profitability continue to promote a recovery in investment.”
Growth Projections
Making minor changes to its forward guidance, the ECB hinted that it expects key interest rates to stay at extremely low levels “for an extended period of time and well past the horizon of the net asset purchases.”
Going forward, the ECB sees the Euro zone economy expanding at a modest but firm clip. Plus, the fiscal policy in the Euro area is likely to be slightly “expansionary in 2016 and to turn broadly neutral in 2017 and 2018.”
The ECB now sees “annual real GDP increasing by 1.7% in 2016, by 1.6% in 2017 and by 1.6% in 2018.” Compared with the June 2016 projections, the guidance for real GDP growth for both 2017 and 2018 was cut from 1.7% while 2016’s GDP growth forecast was upped from 1.6%.
The organization now forecast annual HICP inflation at 0.2% in 2016, 1.2% in 2017 (down from earlier outlook of 1.3%) and 1.6% in 2018. Inflation forecasts for 2016 and 2018 are in line with the June estimate. The rate is well below the central bank’s target of 2%. Notably, the Euro zone economy fell short of ECB’s inflation goal for more than three years and will not likely reach that level even in 2018.
Market Impact
In the absence of ECB’s further accommodative actions, euro gained strength, offering over 0.1% gains on CurrencyShares Euro ETF (FXE). Global stocks were moderate with a tilt toward negative sentiments as the ECB stayed put.
All in all, the Euro zone with subdued growth and inflationary backdrop has managed to stay afloat at the current level. However, research houses like BNP Paribas think that “asset purchases will have to continue beyond March 2017 -- but it seems too many of the council want to delay the decisions over what to buy and for how long.”
Like several analysts, we also believe that the ECB is just taking time to see the course of economic progress and understand the full-impact of Brexit, before committing on further stimulus addition (read: Europe After Brexit: 5 Keys to Investing with ETFs).
So, investors can definitely play the Euro zone economy at the current level, if they become a little picky. Below we highlight a few ETFs, which added considerable gains on September 8 defying apparent gloom.
ETFS Diversified-Factor Developed Europe Index Fund – Up 2.47%
The fund looks to track the scientific beta developed Europe multi-beta multi-strategy equal weight index. U.K. has the largest weight (26.78%), followed by France (14.24%) and Switzerland (11.03%). Investors should note that some positive economic data points recently favored U.K. and France investing.
MSCI Eurozone High Dividend Yield Hedged Equity ETF – Up 2.41%
The fund is a great destination for dividend seekers as it yields about 3.89% annually. Also, the fund takes care of fluctuations between the value of the U.S. dollar and the euro (read: 5 Undervalued ETFs for Dividend Lovers).
First Trust Eurozone AlphaDEX ETF (FEUZ - Free Report) – Up 1.36%
The fund has a tilt toward Germany (26.2%) and France (24.1%). The underlying index of the fund picks stocks on the basis of both growth factors and value factors.
iShares MSCI United Kingdom Small-Cap ETF (EWUS - Free Report) – Up 1.32%
Since the U.K. economy has showed resilience lately, this small-cap U.K. ETF should be in focus assmaller capitalization stocks better reflect the domestic economic picture (read: UK ETFs in Focus As the Economy Defies Brexit Fears).
iShares Currency Hedged MSCI Spain ETF – Up 1.29%
This fund is focused on Spain. The economy is on an improving track with its GDP growing for 12 successive quarters. Unemployment, though extremely high at 20%, has declined to almost a six-year low. All these gave the fund a boost lately.
O'Shares FTSE Europe Quality Dividend Hedged ETF – Up 1.18%
The fund gives exposure to stocks with high quality, low volatility and solid dividend yield. The fund yields about 5.39% annually (see all European 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 >>