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Europe ETFs: Moving into a Period of Weakness?

This article was originally published on ETFTrends.com.

After private-sector activity diminished for the third-straight month in April, the Eurozone economy may be in for a period of weakness and potentially drag down European markets and related exchange traded funds.

Europe-related ETFs have been relatively stable in recent weeks. Over the past month, Vanguard FTSE Europe ETF (VGK) rose 2.7%, iShares MSCI EMU ETF (EZU) gained 3.0% and SPDR EURO STOXX 50 (FEZ) advanced 3.6%.

However, economic activity is slowing and could weight on future gains. A composite purchasing managers’ index came in at 55.1, below the flash estimate of 55.2 and the lowest since January 2017, Bloomberg reports. The slowdown was due to services, where the gauge slipped more than initially estimated to 54.7. Nevertheless, the readings remained above 50, which signaled an expansion.

Related: 8 Timely Europe, Japan ETFs Leading the Pack

IHS Markit, which compiled the PMI, said euro-region growth remains “solid,” but added that two forward-looking indicators - backlogs of work and business expectations - had pulled back.

“Any further deterioration could herald new concerns among policy makers regarding the economic outlook,” Chris Williamson, chief business economist at IHS Markit, told Bloomberg.

European Central Bank Holds Off Ending Stimulus Measures

The updated data comes off the heels of disappointing reports that pushed the European Central Bank to hold off from ending stimulus measures. Policy makers said they still need time to reassess the economic data but have stuck to the viewpoint that growth is not under any serious threat.

“The ongoing robust recovery that the euro zone is experiencing is a source of optimism for the immediate future,” ECB Vice President Vitor Constancio recently said. “The euro area is much more resilient to possible external financial shocks.”

ECB chief economist Peter Praet contended that the slowdown is to be expected, especially after the fast expansion over 2017, but the weakness came sooner than expected.

For more information on the European markets, visit our Europe category.

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