Eurozone equities and region-related exchange traded funds bounced back Friday as bargain hunters pounced on a cheap opportunity following a steep sell-off on disappointing European Central Bank action.
On Friday, the iShares MSCI EMU ETF (NYSEArca: EZU) rose 0.8% and the SPDR EURO STOXX 50 (NYSEArca: FEZ) gained 0.9% after European stocks saw their worst daily lost since August yesterday on the lackluster ECB announcement. [Where Does Limp ECB Stimulus Leave Euro ETF?]
Despite the lighter-than-expected ECB stimulus package, the sell-off may have been overdone. Investors may have pushed up the Eurozone markets Friday after realizing that fundamental factors, like continued central bank easing, are still supporting the economy.
“The market overreacted to the ECB, but they’re still pumping in almost a third of a trillion euros into the economy over the next 18 months – that’s a lot of money,” Ben Kumar, an investment manager at Seven Investment Management, told Bloomberg.
Moreover, Euro-hedged ETFs, which diminish the negative effects of a stronger dollar or weaker euro currency, outpaced non-hedged Europe ETFs. On Friday, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) was up 2.0, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) rose 1.8% and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) gained 1.8%.
The hedged ETFs were outperforming as the U.S. dollar strengthened. The U.S. Dollar Index, which tracks the greenback against a basket of major currencies, rose 0.8% to 98.42. Meanwhile, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) dipped 0.7% Friday as the euro fell 0.7% to $1.0868. [A Pivotal Month for U.S. Dollar ETFs]
The dollar appreciated Friday as the strong November employment report fueled expectations that the Federal Reserve will hike interest rates later this month. Nonfarm payrolls increased a seasonally adjusted 211,000 last month, with the unemployment rate at 5%, after a rising a revised 298,000 in October, reports James Ramage for the Wall Street Journal.
“Overall, it’s positive for the dollar as it cements the case for a December rate hike,” Ian Gordon, currency strategist at Bank of America Merrill Lynch, told the WSJ. “The next leg of dollar move is dependent on the pace of hikes next year. The report will cause people to question the pace of rate hikes in 2016, which is positive for the dollar.”
WisdomTree Europe Hedged Equity Fund
For more information on the Eurozone, visit our Europe category.
Max Chen contributed to this article.