- 27 октября 2017, 19:00
- Zacks Investment Research
The European Central Bank (ECB) said that though it will eventually pare back its monthly bond purchase program, it will keep buying through next September. The ECB also said that interest rates will remain unchanged well past the end of the quantitative easing (QE) program.
Such a move quashed expectations of a stimulus wind down, driving European equities higher. After all, these programs were aimed at fending off threats of Eurozone deflation. In fact, such policies are helping the currency bloc’s economy post its strongest year since 2007, with measures of consumer confidence touching a decade-high.
Banking on such encouraging developments, investing in sound European stocks does not seem to be a bad proposition.
Draghi Pulls off Dovish Trick with QE Plan
The ECB said that it will be slashing the level of bond purchases every month, but will extend the length of the time the stimulus program runs. The central bank has also promised to buy €30 billion in bonds from €60 billion beginning January 2018, and intends to extend its monetary stimulus program until at least September of 2018. The ECB was more dovish than its watchers had anticipated. After all, this is no “taper” but merely a “downsize” of Eurozone QE.
In fact, the central bank said that it still reserves the right to boost QE. Draghi dismissed concerns that the central bank would run out of assets to acquire. He hinted that the bank is capable of plugging any gaps in finding the right government bonds to be acquired.
QE Designed to Boost Eurozone Economies
Three years into QE, the Eurozone’s economy has progressed by leaps and bounds. Production output has increased, with growth exceeding levels witnessed in the United States and the U.K. this year. Further, an index of manufacturing scaled the highest level in six years, rising from 58.1 in September to 58.6 in October.
About 6 million jobs have been created during the said period, with unemployment levels remaining low. Hiring for the manufacturing sector was the highest this month since 1997 and employment in the service sector also increased.
And why won’t such an ultra-accommodative policy help? Such an unconventional form of monetary policy propels economic growth through the purchase of government bonds. This lowers short-term interest rates and increases money supply.
The ECB, meanwhile, kept its rates at ultra-low levels, with its main rate at zero and another one below that level. The message to investors is clear. The bank didn’t want to repeat the mistake made in 2008 and again in 2011. During that period, the bank raised interest rates only to reverse its course due to the fall of Lehman Brothers and then because of the sovereign debt calamity in the Eurozone.
European Stocks Close Higher After ECB Reveals Gentle Taper
European stocks rallied following the ECB’s move to extend its asset-purchasing program. German equities ended at record highs, while Germany’s DAX 30 index popped 1.4% to 13,133.28. This surpassed the previous high of 13,043.03 scaled on Oct 18. France’s CAC 40 ended 1.5% up to close at 5,455.40, and Italy’s FTSE MIB added 1.6% to close at 22,807.42.
The broader Stoxx Europe 600 index rose 1.1% to end at a one-week high of 391.27. The countries that make up the index are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Switzerland, Sweden and the U.K.
Grab These 4 European Stocks Now
ECB’s decision against winding down its stimulus program and boosting Eurozone economic growth bode well for European shares. Hence, investing in the same appears judicious.
Thus, we have selected four stocks that flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Score of A or B. Here, V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
RWE AG RWEOY is a supplier of electricity and natural gas in Europe. RWE Aktiengesellschaft was founded in 1898 and is headquartered in Essen, Germany. The stock has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings rose 6.8% over the last 60 days. The company’s expected growth rate for the current year is 69.8%, way higher than the industry’s estimated growth of 3.4%.
Daimler AG DDAIF engages in the development, production, and distribution of passenger cars, trucks, vans, and buses in Germany and internationally. Founded in 1886, Daimler is headquartered in Stuttgart. The company currently has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings increased 2.1% in the last 60 days. Daimler is expected to yield a return of 24.3% this year, higher than the industry’s projected growth of 20.2%.
Bayer Aktiengesellschaft BAYRY – with a Zacks Rank #1 – operates as a life science company worldwide. The company was founded in 1863 and is headquartered in Leverkusen, Germany.
The Zacks Consensus Estimate for its current-year earnings advanced 0.5% over the last 60 days. The stock is expected to give a return of 9.4%, higher than the industry’s estimated growth of 5.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arkema S.A. ARKAY, incorporated in 2003, produces and sells chemical products worldwide. The company is based in Colombes, France. The stock has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings increased 0.2% in the last 60 days. The company’s expected growth rate for the current year is 39.2%, much higher than the industry’s estimated growth of 9.8%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
RWE AG (RWEOY): Free Stock Analysis Report
Bayer AG (BAYRY): Free Stock Analysis Report
Daimler AG (DDAIF): Free Stock Analysis Report
Arkema SA (ARKAY): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research