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Bloomberg
Mario Draghi is having no success convincing stock investors that the European Central Bank has the firepower to reignite growth.
While all economists in a Bloomberg survey expect the central bank to cut interest rates when policy makers meet on Thursday, and 73 percent project them to boost the amount of money put into the financial system through bond purchases, fund managers aren’t optimistic about a post-decision equity rally. In the first year of quantitative easing, the Euro Stoxx 50 Index fell 17 percent, and volatility reached levels not seen since 2008. The gauge has dropped in each month but one following an ECB meeting since April.
“It won’t be easy for Draghi to bring back confidence in the recovery,†said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “Growth and inflation in Europe remain stuck at low levels and earnings revisions continue to fall. The market needs better earnings revisions and better economic surprises. “
Even after the central bank pumped about €720 billion ($794 billion) into the region, manufacturing dropped to its lowest level since 2013, the inflation rate turned negative, and consumer confidence worsened. That’s led analysts to slash profit-growth estimates amid the worst earnings letdown since at least 2007. Investors are pulling money out of European equities at the fastest pace since 2014.
When the central bank started its bond-buying program, shares were steaming toward a high amid growing optimism about the euro area’s
recovery.
But a succession of crises, starting with Greece’s near exit from the single currency, exacerbated by increasing unease over China’s slowing growth, a Volkswagen AG emissions scandal and the Federal Reserve’s December rate increase battered sentiment, leaving stocks up only 3.9 percent for 2015, from as much as 22 percent.