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European Economic Update – 09 March 2015

ECB revises growth and inflation forecasts higher as economic data continues to surprise on the upside

In Europe equity markets have continued to perform strongly as the date for the implementation for the ECB’s QE program has approached (today). In particular, the DAX in Germany has continued to set new records while the CAC 40 in France also remains at a five year high. In addition to the aforementioned, economic data on the continent has continued to surprise on the upside.

This is as both German and European retail sales for January came in substantially ahead of estimates last week, at +2.9% and +1.1% respectively, while the continent wide unemployment rate also fell for the second consecutive month (11.3% > 11.2%).

Furthermore, CPI data for February also highlighted a sharp rebound of headline inflation in Europe during the month, which is thought to be the result of a minor recovery in oil prices.

 

Looking ahead

Looking ahead we expect that the ECB QE program will remain the predominant driver of European financial markets for the foreseeable future. This should remain a positive influence upon equities as the ECB enters the bond market, compresses yields and drives some investors further afield in search of returns.

Concerns over Greek reforms also appear set to remain a potential pitfall for investors over the near term as the nation is due to repay a $350 million loan to the IMF at the end of the week, which means that euro-group approval of the reform measures tabled today will be key for a quiet resolution to the ongoing stand-off.

In terms of economic data, industrial production data for France, Italy and the continent as a whole will form the key events, once past the meeting of euro-group finance ministers today.

ECB QE, the details

  • The ECB will purchase 60 billion euros of sovereign and private sector bonds each month until September 2016
  • Member state central banks will purchase home state bonds within their own markets
  • It will not purchase bonds that are trading at prices where the yield would be less than the deposit rate (-20 bp)
  • Maturity limit is a remaining balance of 30 years and 364 days. Will be flexible when it comes to purchases, paying due attention to its size relative to the market

EU indices

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 IMPORTANT:
The contents of this report and the Stockatonia website (https://www.stockatonia.co.uk/) have been prepared to provide general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Please always remember that the value of investments may fall as well as rise. Investing in securities, and any other products associated with them, carries a high degree of risk and may not be suitable for all investors. For advice or guidance related to investing in securities markets, please consult with your own financial adviser. 

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