October 23, 2019
We've since had softer euro area inflation, manufacturing and confidence data — and softer manufacturing data, globally.
Now, the ECB's decision to get back in the QE business was clearly driven by the downside risks associated with an indefinite global trade tensions and the prospects of no-deal on Brexit. And we now have what looks like a deal on U.S./China trade and Brexit.
So, will they have to up-the-ante? Yesterday we revisited the "bazooka" option for the ECB: buying stocks.
As we discussed last month, negative rates haven't worked in Europe, because the policies aren't forcing savers into higher risk assets. It's not in their culture to buy stocks.
The ECB's explicit presence in European stock markets would reduce the risk premium in stocks, which incentivizes capital flows out of negative yielding bonds and into higher returning stocks. And a higher stock market would go a long way toward driving, confidence, investment and ultimate economic demand.
With this in mind, European stocks continue to be the spot to watch. European blue chips have a long way to go to catch up with the peformance of U.S. blue chips over the past decade, and the past five years …