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Draghi Fires the Bazooka

European markets are rallying with the latest moves by the European Central Bank (ECB) to support the Eurozone recovery with another round of stimulus.

The day after the announcement, the Standard & Poor’s 500 Index climbed 1.4%, erasing a loss for the week. The Stoxx Europe 600 Index jumped 2.6%. West Texas Intermediate oil added 2.1% to $38.63 a barrel and the euro fell 0.2% to $1.1152.

Mario Draghi, the head of the central bank, outlined the following initiatives:  

  • An increase from 60 billion euros to 80 billion a month in stimulus
  • Extended the stimulus program to at least March 2017
  • Expanded the assets being purchased to include corporate bonds
  • Lowered the deposit rate by 0.1 points to -0.4%
  • Announced a new long-term refinancing operation that essentially pays banks to lend.

The New York Times noted that the steps represent  “a significant escalation of the E.C.B.’s efforts to get banks to lend more money, apply a jolt to the Eurozone economy and head off the threat of a destructive decline in prices known as deflation.”

We have been arguing since late last year that the stars were aligning for European multinationals to be the next major investment opportunity in 2016, and we’re more confident in Europe’s recovery with the central bank’s latest moves.

In anticipation of the recovery, in early January we expanded our European portfolio to include more firms that stand to benefit from increased exports thanks to a cheaper euro, higher domestic consumer spending, and more U.S. tourists traveling to Europe to take advantage of the strong dollar.

Further, despite slight a revision downward of the central bank’s 2016 GDP forecast for the Eurozone, it appears the European economy on balance has held up well, despite the recent market rout that slowed growth at the end of the year.  In fact, the Eurozone economy grew at its strongest rate for four years in 2015. 

And in addition to an improvement in Europe’s overall market, we have also been witnessing a significant improvement in many of our Aggressive Portfolio European bank holdings, with double digit price increases in the last month. 

In the March issue of Global Income Edge we cover the performance of our global bank holdings, as well as highlighted five top holdings that have outperformed during this period of market stress over the last few months. 

 


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