Life for a financial market trader can be challenging at the best of times, particularly when investing in entities like commodities that require you to assume direct ownership of an underlying asset.
After all, this creates significant restrictions in terms of buying and selling goods, even though vehicles such as CFD trading (described here) have introduced greater degrees of flexibility for investors. When you also consider the challenges created by macroeconomic events and trends, it remains enduringly difficult to profit from the wide array of asset classes available in 2017.
Regardless of their precise portfolios, however, investors of all types will have their interest piqued by the recent meeting of the European Central Bank (ECB). But what was discussed at the recent gathering, and what will the ramifications of the meeting be?
Geopolitical Concerns and Quantitative Easing: A Period of Reflection for the ECB
The build-up to the latest meeting could arguably not have been worse, as European shares and the previously robust Euro (EUR) saw sudden and noticeable declines in the face of serious geopolitical concerns. More specifically, market leaders in the European financial sector continued to be plagued by the ongoing conflict between North Korea and the U.S, exacerbating a mood that was already cautious in anticipation of the ECB’s latest meeting.
While the EUR rebounded quickly ahead of the ECB’s most recent policy meeting, European shares continued to inch lower amid more sustained losses. In fact, the pan-European STOXX 600 index fell by 0.1%, while the blue-chip equivalent (the STOXX50E) declined by a more worrying 0.3%.
So even before the ECB’s meeting, it was clear that traders would be inclined to seek out more risk-averse investment options. It was also likely that investors would place a greater emphasis on economic fundamentals, such as the base interest rate adopted, the prevailing inflation rate and the impact that continued monetary policy would have on the Euro. The key area of focus was the ECB’s large-scale quantitative easing program, which was initially implemented to stimulate growth in Europe and prop-up an ailing single currency.
What Was Determined at the Meeting and How did the Markets React?
With the EUR continuing to a robust performance, underlying concerns surrounding the economy have compelled policymakers to approach the withdrawal of stimulus measures with caution. This means that the scheme, which has involved the procurement of $2.38 trillion worth of bonds, is unlikely to be withdrawn until October at the earliest. It may even continue into 2018, although this meeting was significant in that the ECB did enter into formative discussions relating to the precise nature and the time-frame of their plans.
For the most part, the markets warmed to this news, with the EUR soaring to $1.20 against the U.S. Dollar in the immediate aftermath. As with the management of any economic policy or quantitative easing program, however, the timing of its withdrawal will prove critical and some investors (and bankers) are concerned that the ECB could delay the decision for too long. This will hurt the returns of Europe’s leading financial institutions, who are set to benefit when the associated yields and interest rates rise.
This will be a space for investors to watch, particularly as sentiment is likely to wane slightly in anticipation of an official move from the ECB. It can only be hoped that they withdraw their stimulus program decisively, rather than waiting for the value of the EUR to decline and the opportunity to pass.
Marcus Turner Jones graduated in Economics from the University of Sheffield before pursuing a career as a Market Analyst in London. He has his own website, Turner Jones Finance, and writes freelance from Buenos Aires with his dog, Luna.