European stocks rose on Monday morning as European Central Bank President Mario Draghi alluded to the possibility of greater economic stimulus.
Tuesday, November 25, 2014
The Stoxx Europe 600 gained 0.4%, France’s CAC 40 increased 1%, Germany’s DAX added 0.5% and the UK’s FTSE 100 ticked up 0.1%.
German business sentiment improved from 103.2 in October to 104.7 in November. A Wall Street Journal survey of analysts predicted a reading of 103. The strong mark is positive for Europe’s largest economy and may indicate the eurozone’s overall health is recovering. However, the optimistic sentiment could also delay the economic stimulus promised by ECB President Draghi.
Core inflation remains below target
Draghi’s focus for the proposed monetary stimulus would be the weak Eurozone inflation rate, according to Bloomberg. The current level is less than half of the target, which is just shy of 2%.
However, not all nations are onboard with the possibility of an ECB sovereign bond purchasing program, known as quantitative easing. A number of countries, including Germany, the Netherlands and Austria, do not believe quantitative easing is necessary. As a result, it remains unclear exactly when Draghi would implement such actions.
“The stakes are high and the risks are asymmetric,” Frederik Ducrozet, economist at Credit Agricole in Paris, told Bloomberg. “A drop in inflation, even a small one, could push the ECB to do something more in December. On the other hand if there is an upside surprise, that buys them time.”
Draghi is scheduled to make an address in Helsinki, Finland, on November 27. It will be his last chance to offer a preemptive glimpse into policy changes next week. At his last speech – in Frankfurt, Germany, on the 21st – he indicated that the ground was set for stimulus.
“We will do what we must to raise inflation and inflation expectations as fast as possible,” he said, according to Bloomberg. He also maintained that the latter “have been declining to levels that I would deem excessively low.”
Investors await some notion of what is in store for the eurozone, and more specifically, when.
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