European Economic Update – 24 March 2015
European equity markets hold onto gains as ECB commences QE; spotlight is back on Greece
European equity markets remained buoyant throughout the last fortnight as the ECB commenced with its easing program and economic data continued to brighten. In particular, we note the recent uptick in both the ZEW and the Eurostat measures of consumer and investor confidence, which we take to be a direct result of the ECB’s belated action.
Despite a moderately brighter outlook for some segments of the euro-zone, Greece has once again come under the spotlight in recent weeks as the nation is yet to persuade the euro-group of finance ministers to release the next tranche of bailout funds to it.
Whether or not this happens now depends upon the speed at which the Greek government can present its proposals for further structural reforms to the group, in addition to implementing pre-existing reform agreements.
Up until now the new Greek government has managed to meet debt obligations as they fall due however, there are just over 2 billion euros of debts to be paid during April, some of which is due to the IMF and the remainder to bondholders.
It is these payments that may prove to be problematic which is why the government has given advanced warning to its creditors that it may run out of cash in April.
While we believe that Greece will ultimately agree to the reform packages that its creditors are asking for, we do not rule out a protracted period of uncertainty in the run up to the end of next month, which may take some of the shine off of European equity markets temporarily.
Looking to the week ahead, the key event for investors is likely to be the release of French and German PMI surveys for the manufacturing and services sectors, followed by more confidence data later in the week (Ifo).
Official projections suggest that each of the above releases should point toward a continuation of the recently positive trend in European data, with the largest improvement expected in the French manufacturing PMI.
Elsewhere in the world investors will focus upon UK and US inflation figures for February, which should herald the start of a new in terms of the divergent monetary policy theme.
German, French and Spanish Indices
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