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Euro ETFs in Focus as ECB Goes Ahead With a Rate Cut
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Implementing its first rate cut since 2019, the European Central Bank (ECB) stayed true to its stance on rate reductions despite an uncertain inflation landscape. The rate cuts bring the interest rate down to 3.75% from the all-time high of 4%.
In their latest meeting on Thursday, ECB policymakers revised their inflationary projections, with inflation now expected to remain above the 2% target until late next year.
More Into Data and Rate Cuts
The benchmark rate in the 20 eurozone countries saw its first rate cut after a period of nearly five years, with the move providing some respite to businesses and consumers who have been adversely affected financially by the sharp rise in interest rates since late 2021, according to CNN.
The combined output in manufacturing and services reached a 12-month high in May, according to a survey of purchasing managers by S&P Global and Hamburg Commercial Bank, as quoted on CNN. The positive data resulted in business confidence soaring to its strongest level in over two years, followed by unemployment hitting a record low.
Eurozone's composite Purchasing Managers' Index for May revealed growth for the third consecutive month, according to CNBC. Germany, Spain and Italy witnessed steady growth in the services and manufacturing sectors, with France experiencing a slight decline in the recent months.
What Lies Ahead?
Joining the likes of Canada, Switzerland and Sweden in implementing rate cuts to reverse some of the steepest rate hikes in the recent past, according to Reuters, the ECB will now shift its focus on its September meeting, where it will update its macroeconomic projections. A rate cut in July now appears highly unlikely.
Even with a rate cut, the ECB maintained its cautious tone, signaling that efforts to control inflationary pressures aren't completely over yet, and the ECB hasn't committed to further rate cuts. Per ECB President Christine Lagarde, as quoted on CNN, the central bank will adhere to its “data-dependent and meeting-by-meeting approach.”
The ECB's stance on future rate cuts is heavily influenced by the decisions made by the Fed. According to CNN, compared to their American counterparts, ECB policymakers may be hesitant to take overly aggressive measures that could weaken the euro's exchange rate against the US dollar, which would raise import costs and affect European inflation rates.
Interest rates remaining elevated for longer may provide some boost to the region’s currency, attracting more foreign capital inflow and boosting the demand for the Euro.
Stubborn Inflation Remains a Hurdle
Inflation in the Eurozone grew more than anticipated in the month of May, rising to 2.6% from April’s 2.4%, according to CNN. Driven by rapid growth in wages, core inflation, which excludes volatile food and energy prices, also accelerated. On Thursday, the ECB increased its inflation forecast for the current year to 2.5%, up from the 2.3% projected in March.
As quoted on Reuters, the ECB acknowledged the persistent domestic price pressures despite the recent progress, indicating that inflation is expected to remain above the target well into the next year.
The central bank’s message caused confusion among some observers, and dampened investor confidence regarding the possibility of further rate cuts, with only one more move fully priced in by the end of 2024.
ETFs in Focus
Below, we highlight a few ETFs for investors to increase their exposure to the Eurozone.
Vanguard FTSE Europe ETF (VGK - Free Report) has gained 7.88% over the past three months and 20.25% over the past year.
JPMorgan BetaBuilders Europe ETF (BBEU - Free Report) has gained 7.54% over the past three months and 20.31% over the past year.
iShares MSCI Eurozone ETF (EZU - Free Report) has gained 6.35% over the past three months and 21.21% over the past year.
Xtrackers MSCI EAFE Hedged Equity ETF (DBEF - Free Report) has gained 6.41% over the past three months and 23.12% over the past year.
iShares Core MSCI Europe ETF (IEUR - Free Report) has gained 7.90% over the past three months and 20% over the past year.
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Euro ETFs in Focus as ECB Goes Ahead With a Rate Cut
Implementing its first rate cut since 2019, the European Central Bank (ECB) stayed true to its stance on rate reductions despite an uncertain inflation landscape. The rate cuts bring the interest rate down to 3.75% from the all-time high of 4%.
In their latest meeting on Thursday, ECB policymakers revised their inflationary projections, with inflation now expected to remain above the 2% target until late next year.
More Into Data and Rate Cuts
The benchmark rate in the 20 eurozone countries saw its first rate cut after a period of nearly five years, with the move providing some respite to businesses and consumers who have been adversely affected financially by the sharp rise in interest rates since late 2021, according to CNN.
The combined output in manufacturing and services reached a 12-month high in May, according to a survey of purchasing managers by S&P Global and Hamburg Commercial Bank, as quoted on CNN. The positive data resulted in business confidence soaring to its strongest level in over two years, followed by unemployment hitting a record low.
Eurozone's composite Purchasing Managers' Index for May revealed growth for the third consecutive month, according to CNBC. Germany, Spain and Italy witnessed steady growth in the services and manufacturing sectors, with France experiencing a slight decline in the recent months.
What Lies Ahead?
Joining the likes of Canada, Switzerland and Sweden in implementing rate cuts to reverse some of the steepest rate hikes in the recent past, according to Reuters, the ECB will now shift its focus on its September meeting, where it will update its macroeconomic projections. A rate cut in July now appears highly unlikely.
Even with a rate cut, the ECB maintained its cautious tone, signaling that efforts to control inflationary pressures aren't completely over yet, and the ECB hasn't committed to further rate cuts. Per ECB President Christine Lagarde, as quoted on CNN, the central bank will adhere to its “data-dependent and meeting-by-meeting approach.”
The ECB's stance on future rate cuts is heavily influenced by the decisions made by the Fed. According to CNN, compared to their American counterparts, ECB policymakers may be hesitant to take overly aggressive measures that could weaken the euro's exchange rate against the US dollar, which would raise import costs and affect European inflation rates.
Interest rates remaining elevated for longer may provide some boost to the region’s currency, attracting more foreign capital inflow and boosting the demand for the Euro.
Stubborn Inflation Remains a Hurdle
Inflation in the Eurozone grew more than anticipated in the month of May, rising to 2.6% from April’s 2.4%, according to CNN. Driven by rapid growth in wages, core inflation, which excludes volatile food and energy prices, also accelerated. On Thursday, the ECB increased its inflation forecast for the current year to 2.5%, up from the 2.3% projected in March.
As quoted on Reuters, the ECB acknowledged the persistent domestic price pressures despite the recent progress, indicating that inflation is expected to remain above the target well into the next year.
The central bank’s message caused confusion among some observers, and dampened investor confidence regarding the possibility of further rate cuts, with only one more move fully priced in by the end of 2024.
ETFs in Focus
Below, we highlight a few ETFs for investors to increase their exposure to the Eurozone.
Vanguard FTSE Europe ETF (VGK - Free Report) has gained 7.88% over the past three months and 20.25% over the past year.
JPMorgan BetaBuilders Europe ETF (BBEU - Free Report) has gained 7.54% over the past three months and 20.31% over the past year.
iShares MSCI Eurozone ETF (EZU - Free Report) has gained 6.35% over the past three months and 21.21% over the past year.
Xtrackers MSCI EAFE Hedged Equity ETF (DBEF - Free Report) has gained 6.41% over the past three months and 23.12% over the past year.
iShares Core MSCI Europe ETF (IEUR - Free Report) has gained 7.90% over the past three months and 20% over the past year.