When it comes to markets, however, Super Mario could become Santa Mario and give investors a seasonal rally. Data across Europe is improving but is still a long way off a proper recovery. Draghi holds all the chips and the next ECB council meeting on 3rd December will be watched with more than the usual level of interest: while the US and UK are preoccupied with when to raise interest rates, the ECB has hinted that the €1 trillion already pledged for quantitative easing may not be enough and it will consider further monetary accommodation!
The issue in Europe is the banking system where insufficient capital has been raised to give the banks the cushion they need to start lending again in earnest. In the US, and to a lesser extent in the UK, this has already happened. Small businesses are beginning to get access to cash, but their larger brethren have tapped the bond markets for all their worth and used the cash raised for share buybacks and “special” dividends. This of course has helped to keep the stock markets buoyant and this is what might come to pass in Europe too. The markets did spike up on Draghi’s press conference news, but this could well be a case of buy on the rumour of more QE and sell on the news. We wait and watch.
More QE, in whatever form, will exert further downward pressure on the euro, which has already started to weaken in anticipation. Europe is not expensive relative to the UK and the US, but the uncertainties continue to give pause for thought. However, if Draghi reinforces the “whatever it takes” doctrine then expect the markets to catch up with alacrity.
There are a few Elite Rated European equity funds to choose from if you don’t think Draghi has a Mission Impossible keeping Europe as one: BlackRock Continental European, Baring Europe Select, BlackRock Continental European Income, BlackRock European Dynamic, Henderson European Focus, Henderson European Selected Opportunities, Jupiter European, Jupiter European Situations, Threadneedle European Select and T. Rowe Price European Smaller Companies.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Clive’s views are his own and do not constitute financial advice.
