Europe in Two Minutes: Drivers, Headwinds and Opportunities
By: Janus Henderson Investors
Harvest Exchange
October 26, 2017
Europe in Two Minutes: Drivers, Headwinds and Opportunities
In this video, Portfolio Manager Tim Stevenson provides his views on QE tapering and recent euro strength.
I think this whole issue about the European Central Bank QE tapering is quite an important one for the European markets because the fact is that it needs to happen as the European economies have begun to strengthen and they are in a much better position, and you have to try to get away from this negative interest rate environment, which Europe has, which is actually quite counter-productive and makes it impossible to price anything. The ECB has to find a way of doing that without actually spooking people. So, I think it will be a very, very gentle process, and they will continue to warn that it is coming, that they’re going to ease back on the amount of buying that they’re doing, but doing that in the context of the fact that there is no sign of high inflationary pressures in Europe and the growth is still pretty fragile. So, I think it’s going to be a very long-term process, and, like all these processes, I suspect, will get once or twice where the market overreacts to it but the broad trend is actually a positive one.
The strength of the euro is going to be a headwind in the very short term. And you’ve got to bear in mind that the euro a year ago was trading below 110 against the U.S. dollar, when now it has been trading at above 120, so there is a move there. It’s clear that companies did very well in terms of their export but above all in terms of the translated earnings as those strong dollar earnings were translated back into the weak euro. Just inverse that now. You’ve got the effects of a weaker dollar being translated back into the euro. It’s not a huge headwind, but it is going to mean that the chances are that 2018 on average for the European markets will probably not be as high as some people initially expected.
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Quantitative Easing (QE) is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market.
Originally Published at: Europe in Two Minutes: Drivers, Headwinds and Opportunities
