The only guaranteed theme for the second quarter is that quantitative easing in the eurozone will continue, and it will influence all investment decisions.
This means some of the underperformers in Europe will play catch up, as sector level performances rebalance, Chris Tinker, co-founder of Libra Investment Services, said.
Growth in fair value in European stocks is “well ahead” that registered in its regional peers, with investors rotating out of the US into Europe according to capital flows data.
As economic conditions keep improving in Europe, “the positive risk bias towards growth stocks and sectors should remain,” Tinker predicted.
The European Central Bank’s money-printing keeps cheering up investors and real economy participants alike.
The European Commission’s economic sentiment indicator (ESI) jumped to 103.9 this month versus consensus expectations of 103.1 and from February’s 102.3, according to data released on Monday.
Improvements took place both in core countries and in periphery eurozone members, another sign that the ECB’s policy is finally helping the weakest members too.
Italy, Germany and Spain showed the biggest improvements in the economic sentiment indicator, while Greece saw a drop in confidence in March, when negotiations with eurozone officials over its bailout yielded no result.
“It seems as if low energy prices, the weaker euro and the buoyant financial markets on the back of the ECB’s QE are working their magic,” Peter Vanden Houte, an analyst with ING, wrote in a market note.
Another sign that the ECB’s QE is working was the fact that selling price expectations increased in all sectors, while deflation expectations diminished.
Besides the Greek troubles, the main danger is that ECB QE is tapered prematurely, but the central bank is well aware of this risk and therefore it would avoid it, in Vanden Houte’s opinion.
“Any hint of premature tapering would lead to a strengthening of the euro, thereby taking away one of the main engines of the growth recovery,” he said.
“We therefore expect the ECB to continue its QE programme in full, keeping money market rates and short-term bond maturities in negative territory for some time to come.”
He also predicted that eurozone growth would “comfortably” reach 0.4% or even more in the first quarter from the fourth.