Generali Investments Europe (GIE) has stated in a recent note that the quantitative easing program launched by the ECB will “set the tone for financial markets for quite some time to go.”
GIE expects risky assets to rally and bond yields to remain extremely depressed. Klaus Wiener, chief economist at GIE, commented: “Core government bond yields will stay extremely depressed. 10-year bunds are now trading at 0.34% but may fall even more when the ECB starts actually buying government bonds on 1 March,” Investment Europe reported Saturday.
“With core yields so low, investors will be pushed into riskier assets. Finally, euro area stocks will rally with double-digit total returns now likely both this year and next.”
Euro Dips
The euro dipped against other major currencies despite improved growth numbers in the ailing eurozone, as the market worries about Greece’s debt crisis, AFP said.
“The euro is mildly softer despite slightly better-than-expected data, and with comments from Greek and German officials signaling willingness to compromise with respect to Greece’s reform, budget and debt plans,” said Eric Viloria, currency strategist at Wells Fargo Securities.
Official data released on Friday showed economic activity in the eurozone was up slightly in the fourth quarter, expanding by a better-than-expected 0.3 percent after a 0.2 percent rise in the third quarter.
The currency bloc’s fourth-quarter growth was led by a 0.7 percent gain in Germany, Europe’s largest economy, that also beat estimates.
The euro slipped to $1.1393 around 2200 GMT, from $1.1406 late Thursday. “The euro really didn’t benefit from these good growth numbers because the market knows they will change nothing in the European Central Bank’s monetary policy,” said Vassili Serebriakov of BNP Paribas.
Beginning next month, the ECB will launch an unprecedented trillion-euro bond-buying program through September 2016 in a bid to ward off deflation and boost the flagging eurozone economy.
Traders were also watching Greece’s negotiations with its creditors Friday as hopes rose that a make-or-break meeting with eurozone financial ministers on Monday could reach a new debt deal.
The new anti-austerity Greek government is demanding a replacement agreement to its €240-billion ($270-billion) bailout from the European Union, the European Central Bank and the International Monetary Fund.
The bailout is due to expire at the end of February, and failure to reach a replacement agreement could trigger a Greek default and a chaotic exit from the euro.
German Growth
German growth has signaled a winter recovery for the eurozone economies though some members, including crisis-hit Greece, were left trailing behind.
Official figures showed that GDP across the 19 members of the single currency expanded by 0.3% in the last three months of 2014, led by the export powerhouse Germany, which expanded 0.7%.
Germany’s statistics office, Destatis, said domestic demand and exports were strong, helping the economy gather momentum at the end of 2014.
Economists believe growth could accelerate further this year.
“The German economy looks set to continue surfing on a wave of economic wellbeing,” predicted Carsten Brzeski of ING, adding “with the strong labor market, wage increases, low energy prices and extremely low interest rates, consumers should continue to spend it”.
