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The European Central Bank (ECB) indicated that it will keep interest rates low for at least another year. The central bank’s unexpected dovish stance on interest rates overshadowed its aim to wrap up its crisis era quantitative easing (QE) program by the end of this year.
The euro cratered against the dollar as there is no sign of a rate hike in the near future, which in turn helped European stocks scale north. Thus, investing in such stocks now doesn’t seem to be a bad proposition.
ECB to Keep Rates at Record Low Until Summer 2019
The ECB has laid down its plan to halt its monthly bond purchasing program by the end of this year. Riga, Latvia, the ECB’s Governing Council said that the central bank will continue to purchase bonds worth €30 billion ($35.2 billion) a month through the end of September. And if the medium-term inflation matches the ECB’s outlook, it will reduce bond purchases to €15 billion a month through the end of December and eventually end it.
Concurrently, the ECB has vowed to keep interest rates at ultralow levels “at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path”, a move that market pundits described as dovish.
The ECB has kept its main lending rate unchanged at 0%, while the deposit rate on funds parked overnight at the central bank is at minus 0.4%. ECB president Mario Draghi did mention that the policy makers haven’t discussed when to raise rates. Rate hikes, in fact, have been put on hold due to rise in global risks to the economic outlook, including trade protectionism. Needless to say that the United States is presently pitted against the rest of the world on trade-related issues. President Trump has already approved a plan to impose tariffs worth tens of billions of dollars on Chinese goods. He is also planning to impose similar tariffs on the European Union.
Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, noted that “Mr. Draghi is putting markets on notice; ‘don’t go overboard and start pricing in rate hikes immediately after QE is ending.” He added that “it is also a signal that markets should not expect further changes in the guidance on rates until Q2 next year.”
Euro Takes a Beating, European Stocks Log Best Day in 2 Months
ECB’ rate decision made the euro face its steepest one-day drop against the dollar since June 2016, while the dollar climbed to a two-week high. According to FactSet, the euro rose to $1.1852 versus the dollar before falling back to 1.1640, reflecting a drop of 1.3%. After all, a lower interest rate diminishes the value of the country’s currency compared to nations offering higher rates. Drop in interest rates fails to attract foreign investment, lowering demand for the home country’s currency.
A weaker euro, in the meanwhile, is good news for European stocks. The pan-European FTSEurofirst 300 index rose 1.4% following ECB’s rate decision, while the Stoxx Europe 600 gained as much as 0.4% after losing 0.7% earlier in the trading session.
Germany’s DAX 30 index went up to 1.7% to 13,107.10, hitting a three-week high, while France’s CAC 40 index advanced 1.4% to close at 5,528.46. Spain’s IBEX increased 0.6% to 9,957.70 and Italy’s FTSE MIB index ticked up 1.2% to 22,486.32.
Ireland’s the Iseq index rose 49 points to 7,178, roughly tracking other European indices, while Britain’s main stock index the Ftse 100 climbed 0.8% to a three-week high.
5 Top European Stocks to Snap Up
European stocks rallied, while the euro slumped against the dollar after the ECB indicated that it will not raise interest rates until summer 2019. Banking on this development, investing in sound European stocks seems judicious. We have, thus, selected five such stocks that flaunt a Zacks Rank #2 (Buy).
SAP SE SAP operates as an enterprise application software, and analytics and business intelligence company. SAP SE was founded in 1972 and is headquartered in Walldorf, Germany. In the last 60 days, four earnings estimates moved north, while three moved south for the current year. The Zacks Consensus Estimate for earnings has moved 0.4% up in the same period. The stock’s estimated growth rate for the current quarter is a solid 14.6%.
Infineon Technologies AG IFNNY designs, develops, manufactures, and markets semiconductors and system solutions. The company is headquartered in Munich, Germany. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 4.6% in the same period. The stock’s estimated growth rate for the current year is 20.2% versus the Electronics - Semiconductors industry’s expected rally of 8.3%.
Peugeot S.A.PUGOY engages in automotive, automotive equipment, and finance businesses. The company is based in Rueil-Malmaison, France. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has moved 1.1% up in the same period. The stock’s estimated growth rate for the current year is 58.4% versus the Automotive - Foreign industry’s projected rally of 11.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ferrari N.V. RACE designs, engineers, produces, and sells luxury performance sports cars. The company was founded in 1947 and is headquartered in Maranello, Italy. In the last 60 days, two earnings estimates moved up, while one moved down for the current year. The Zacks Consensus Estimate for earnings has increased 14.9% in the same period. The stock’s estimated growth rate for the current quarter is 11.4% versus the Automotive - Original Equipment industry’s expected rally of 0.05%.
Eni S.p.A. E engages in the oil and gas, electricity generation and sale, and petrochemicals businesses. The company was founded in 1953 and is headquartered in Rome, Italy. In the last 60 days, three earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has moved up 11.3% over the same time frame. The stock’s estimated growth rate for the current year is 76.2% versus the Oil and Gas - Integrated - International industry’s projected rally of 8.8%.
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