In the aftermath of the European Central Bank’s Thursday announcement to begin a government bond purchasing program, stocks in the eurozone have performed well.
Friday, January 23, 2015
The quantitative easing stimulus plan dictates that the central bank purchase 60 billion euros worth of government bonds per month starting in March. Investors saw the move as a bid to strengthen the eurozone by boosting inflation and fighting economic stagnation.
“Deflationary risks have made Europe appear un-investable to many investors,” Peter Oppenheimer, chief global equity strategist for Goldman Sachs, explained to The Wall Street Journal. “Fading this risk could be worth a lot on current prices and we believe it wouldn’t take much to turn a vicious cycle into a virtuous cycle – at least for a while.”
On Friday, European stocks continued to rally. The Stoxx Europe 600 was up 1.6% by midday, France’s CAC 40 gained 1.9%, Germany’s DAX added 1.2% and London’s FTSE 100 inched forward by 0.2%.
Eurozone economy shows signs of life
The ECB’s move to enact quantitative easing was not the only good news for investors in the eurozone. New purchasing manager surveys indicated the region’s economy accelerated in January, according to MarketWatch.
Data research firm Markit surveys over 5,000 companies in the eurozone published the results of its composite purchasing managers index on Friday which topped expectations and rose from 51.4 in December to 52.2 in January.
“There is no good justification to expect the euro-area economy to roar back into life anytime soon; but an undramatic, modest improvement in growth does look likely,” James Ashley, economist at RBC, told MarketWatch. “At the risk of over-interpreting a couple of months of encouraging PMI readings, we think that is precisely what the survey data are beginning to show.”
With the new QE policy in place, investors and eurozone leaders alike hope this modest gain will grow into a significant trend.
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