Gloomy Growth Outlook Sinks Euro Zone Bond Yields

Global growth worries on Friday helped the Dow Jones Industrial Average to shed almost 500 points while the Direxion Daily EURO ST 50(R) Bull 3X Shares ETF (NYSEArca: EUXL) lost 4.25 percent amidst the gloomy economic outlook.

Weaker-than-expected economic data sank EUXL after the IHS Markit Flash Eurozone PMI index fell to 51.7 during the month of December, which represents its lowest level in four years. The chief economist of IHI Markit cited a confluence of trade war fears, sell-offs in the capital markets and the removal of central bank stimuli as reasons for the lowered index.

“Policy mistakes remain the biggest threats to global growth in 2019 and beyond,” said IHS Markit Chief Economist Nariman Behravesh. “Simmering trade conflicts are dangerous, not because they have done damage so far–they haven’t–but because they could easily escalate. At the same time, the sell-off in equity and commodity markets, on top of the gradual removal of stimuli by some central banks, means that financial conditions worldwide are tightening. The good news is that the probability of a single policy event seriously hurting global growth in 2019 is still relatively low.”

EUXL seeks daily investment results equal to 300% of the daily performance of the EURO STOXX 50 Index. EUXL invests at least 80 percent of its net assets in securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

The index is part of the STOXX blue-chip index family and represents the performance of the 50 largest companies among the 19 supersectors in terms of free-float market capitalization in 11 Eurozone countries. The Euro Stoxx 50 declined 0.36 percent on Friday and is also down 11.4 percent year-to-date.

“Certainly people are now starting to look through to end of cycle and say what could end of cycle look like,” said Erik Knutzen, multi-asset class chief investment officer at Neuberger Berman in New York. “While we do expect equities to provide a reasonable return next year, as you get later in the cycle, the posture is probably to fade rallies as opposed to keep risk on through the end.”

Germany, the largest European economy, is also predicting its economy will cool as well as employment growth.

“The weakness triggered by the automotive industry will continue until 2019,” said ifo’s Head of Business Cycle Research and Economic Forecasting Timo Wollmershaeuser. “A wide range of uncertainties are also curbing the global economy, and especially Brexit, Italy and US trade policy to name but a few.”

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