ECB Stimulus Measure Isn’t Instilling Confidence in Europe ETF Investors
This article was originally published on ETFTrends.com.
Europe ETFs retreated Thursday, following the European Central Bank's announcement of new cheap loans for banks and forward guidance for low interest rates ahead, as traders interpreted the stimulus measures as a sign of weakness for the economic environment ahead.
On Thursday, the Vanguard FTSE Europe ETF (VGK) declined 1.1% and iShares MSCI EMU ETF (EZU) was 1.3% lower. VGK also broke back down below its long-term support at the 200-day simple moving average.
In a major policy reversal Thursday, the ECB revealed plans for fresh measures to stimulate the Eurozone economy less than three months after ending a €2.6 trillion, or $2.9 trillion, bond-buying program, the Wall Street Journal reports.
The ECB will hold rates at their current levels at least through the end of this year and announced plans for a new round of cheap long-term loans for banks. ECB President Mario Draghi attributed the stimulus measures to prevalent risks in the economy.
“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi said.
The ECB's move was also a much more aggressive response to the economic slowdown than many expected.
The bank “surprised almost everyone by announcing a new series of measures, trying to avoid an unwarranted tightening” of its policy stance, Carsten Brzeski, an economist at ING Bank, told the WSJ.
ECB officials are trying to bolster an economy that has been pressured by a number of global shocks, including a slowdown in China, protests in France and weakness in Germany's crucial auto industry.
The Organization for Economic Cooperation and Development previously cut its forecast for Eurozone growth this year to 1%, from a 1.8% estimate back in November. Meanwhile, the OECD only slightly diminished its projections for the U.S. and China, by 0.1 percentage point each to 2.6% and 6.2%, respectively.
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