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European equities rallied on Wednesday, buoyed by the upcoming announcement that the European Central Bank will venture in quantitative easing. Global markets are expecting the ECB to announce bond purchases of anywhere between 50-70 billion Euros a month and will remain open ended so long as inflation expectations remain at bay.
Ahead of the upcoming announcement, traders and investors have run up sizable bets against the Euro, making it susceptible to large moves.
Look at today’s knee-jerking move around the news...
Longer term, the Euro has been stuck in a series of lower-highs for years and subsequently breaking below the 1.18 level. Undoubtedly, we are still just speculating around the specifics of the announcement tomorrow but it will be interesting if the break below 1.18 is a sign of further weakness or just a “false breakdown”.
If quantitative easing has taught us anything here in the states... it’s “positive” for stocks. German equities reached all-time highs on Wednesday so there seems to be plenty of optimism surrounding the decision, as the German DAX is up nearly 5% on the year The DAX broke out and above the 10,000 mark after trading in tight range for over a year. Even more interesting, is the accompanying break-out of the DAX relative to the S&P 500. Investors looking for exposure to Germany should look at EWG, the iShares Germany ETF or HEWG, for those looking to hedge out foreign currency exposure
In addition to the ECB announcement on Thursday, investors will be watching Greece closely over the weekend as they hold national elections…. interesting times ahead…