European stock markets rallied following the European Central
Bank's announcement that it will maintain its easy-money policies
for a long while.
But Vanguard FTSE Europe ETF (
), the largest ETF tracking the region, hardly budged Thursday
because the euro's weakness against the dollar offset stock
gains.CurrencyShares Euro Trust (
), measuring the common currency against the dollar, fell 0.72%
to a seven-week low, $129.84.
President Mario Draghi pledged the ECB will keep its policy
interest rate at a record low 0.5% for "an extended period of
This year's expected inflation rate of 1.4% is below the ECB's
target rate of nearly 2%, which means "the ECB has ample scope to
cut interest rates, and perhaps even should do so," according to
Howard Archer, chief U.K. and European economist at IHS Global
Insight. He believes the ECB will likely lower its policy
interest rate to 0.25% from 0.50% in the fourth quarter.
"The ECB could very well be prompted into action to counter a
further rise in eurozone market rates, particularly if they spike
up when the U.S. Federal Reserve starts to taper," Archer wrote
in a commentary. "The ECB could also eventually cut interest
rates if eurozone recovery stalls over the coming months or even
if it fails to gather significant momentum, which is very
Should Be Bullish
Further rate cuts in the currency block would be bullish for
the region's stock markets
as investors, armed with cheap cash, will embrace risk
assets. It would also lower borrowing costs and in turn juice
"Mainly, European policymakers have shattered any speculation
they will follow a path contemplated by the U.S. and Fed Chairman
Ben Bernanke, who is strongly considering a first step toward
tightening," Jonathan Citrin, founder and executive chairman of
CitrinGroup in Birmingham, Mich., with $60 million in assets
under management, wrote in an email.
Record Europe Money Inflow
European equity exchange-traded products attracted the
greatest amount of investor inflow, $5.09 billion, in August,
while global ETPs saw record outflow, said an ETFGI report
Global ETPs disgorged $16.77 billion in assets, while U.S.
stock ETPs bled $16.60 billion and emerging market ETPs were
drained by $5.12 billion. Fixed-income ETFs shed $5.23 billion,
while precious metals shed $1.08 billion.
U.S.-based investors took money out of U.S. markets in favor
of Europe in the face of uncertainties on two fronts, said
Deborah Fuhr, managing partner at ETFGI: 1. Potential military
invention in Syria's war from the U.S. and/or other countries and
2. How and when the Federal Reserve will start scaling back its
All the while, Germany, the U.K. and other European countries
look relatively safer as they've been showing economic
"Developed European countries are less affected by the Fed
tapering than emerging countries, therefore
are shifting from emerging market to Europe ETFs for safety,"
said Minyi Chen, analyst and chief financial officer at TrimTabs