ETFs Moving on ECB Decision (FXE, FEZ, EWI, EWU)

The must anticipate European Central Bank (ECB) meeting has concluded as it was not without some fireworks. The ECB cut the deposit rate to -0.1 percent from 0.0 percent effective June 11.

 

They also lowered the refinancing rate to 0.15 percent from 0.25 percent and the marginal facility interest rate was lowered by 35 basis points to 0.40 percent. The negative deposit rate is the headline grabber as it is the first time a major central bank has lowered an interest rate to negative territory.

 

The goal is to spur growth in the economy via lending and increased spending. The secondary goal is to help fight deflation. This week the growth for the Eurozone for the first quarter came in at a paltry 0.2 percent with inflation at 0.5 percent, well below the central banks goals.

 

The move has ETFs that focus on the region on the move today. The Rydex CurrencyShares Euro ETF FXE was lower at the open but has since moved into positive territory as it appears to be a “buy the rumor, sell the news” situation. In this case investors were selling the Euro in anticipation of the ECB meeting and once the announcement was made the Euro moved in the opposite direction.

 

European stocks continue to hold onto their gains as the SPDR Euro Stoxx 50 ETF FEZ is up about 0.75 percent in early trading. The biggest winner in the region is the iShares MSCI Italy ETF EWI with a gain of 1.4 percent. The largest non-Euro country in Europe, the iShares MSCI United Kingdom ETF EWU is unchanged on the day as it is not as affected by the move made by the ECB.

 

Overall this should be positive news for European stocks as the monetary move looks to stimulate the economy. On the flipside in theory it should put pressure on the Euro versus other currencies around the globe.

Posted In: ETFs