With global volatility threatening the Eurozone economic recovery, the European Central Bank could be forced to enact more aggressive measures, potentially lifting Europe-related exchange traded funds.
ECB president Mario Draghi said that officials will review their plans at the next policy session in March and stated that there are “no limits” on how far the central bank will go within their mandate, reports Paul Gordon for Bloomberg.
“We are adapting our instruments to the changing conditions,” Draghi said. “The credibility of the ECB would be harmed if we weren’t ready to revise the monetary-policy stance.”
For instance, Draghi signaled that the ECB could expand its quantitative-easing program to bolster growth and bring inflation back up, stating that the return of inflation to target is more important than the impact of ultra-low rates. The ECB is scheduled to publish its quarterly Survey of Professional Forecasters on Friday, which will help provide clues on the inflation outlook.
After the more hardened stance from the ECB, the iShares MSCI EMU ETF (NYSEArca: EZU) rose 1.0% and the SPDR EURO STOXX 50 (NYSEArca: FEZ) was 0.8% higher late Thursday. The two ETFs both focus on Eurozone countries.
The statement was “not a firm promise, it is a strong hint that they may move,” Holger Schmieding, chief economist at Berenberg, told Bloomberg. “He has the option of not moving, but then he’d have to explain in March that the situation hasn’t deteriorated.”
Any additional ECB action could also depress the euro currency. On Thursday, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) dipped 0.1% as the euro fell weakened to $1.0882.
Given the pressure on the euro currency and potential stimulus that would help bolster growth, investors should take a look at euro-currency hedged ETFs, which diminish the negative effects of a stronger dollar or weaker euro currency. On Thursday, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) was up 0.7%, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) rose 1.1% and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) gained 1.2%.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.