Investors bet on Europe despite the deflation risk

A possible explanation would be that the market doesn’t quite believe all those bad omens about the Old Continent; another one would be the bad performance of the emerging markets or the overpricing of the US shares.

Be that as it may, the truth is that expectations for the European equity are good even though the economic indicators fall too short. The risk of deflation is certainly a problem on everyone’s lips. There are more and more voices claiming that the ECB must do something –including the Bundesbank, but it isn’t clear whether Mr. Draghi will do something in next week meeting even if he had the German support.

Some experts remind us that no indicator has worsened since Mr. Draghi’s last appearance; and, therefore, the Italian banker doesn’t have any reason so as to change his discourse. This assessment may vary if the March CPI is as negative in all the Eurozone’s economies as it is in Spain. According to the National Statistics Institute, prices fell by -0.2% last March, the greatest slump in 5 years, which deepens the deflation risk.

ECB’s pressure is growing, and there are some people that even bet on debt purchases –a sort of quantitative easing in the European style. Meanwhile, others completely discard any stimulus measures and believe that the ECB may pass (at best) some exceptional program to let SMEs receive credit.

The appreciation of the euro is another concern because its quote implies a downward pressure on the level of prices. Furthermore, a concerted action by the central banks so as to stop the escalation of the currency can’t be ruled out.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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