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Is Europe Recovering Or Not?

Is Europe Recovering Or Not?

Mixed messages from the eurozone this week had investors wondering if the bloc was on an upward trajectory or if it was time to batten down the hatches for another financial meltdown. While the bloc's policymakers appear to be confident in the direction the region is headed, data suggests that there could still be trouble ahead.

Draghi Confident

On Thursday, European Central Bank President Mario Draghi gave an optimistic speech about the region's strength. He said the bank's stimulus program has helped the bloc make strides toward a strong recovery and that he expects to see sustained growth in the coming months. International Monetary Fund Managing Director Christine Lagarde commended Draghi's efforts, saying he had done what he could to hold the region together.

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Inflation A Concern

However, earlier this week data from the bloc showed that inflation had slipped into negative territory in September. The ECB has set an inflation goal of just below 2 percent, so the negative 0.1 percent figure released on Wednesday will likely be a concern. Many believe that poor inflation results like these will undo some of the bloc's progress.

More Stimulus

Draghi promised to do more if inflation remains a problem and although many ECB Board members have said that deflationary concerns were easing, the figures out on Wednesday told a different story. For that reason many are expecting Draghi and the ECB to expand the bank's quantitative easing efforts in the months to come.

Investment Opportunity?

The prospect of more easing has been and incentive for investors looking to get back into Europe. Many investors are looking to funds like iShares MSCI EMU Index Fund (NYSE: EZU), in which the majority of securities come from France, Germany, Spain, the Netherlands and Italy, or SPDR Euro Stoxx 50 ETF (NYSE: FEZ), which tracks the performance of some of the bloc's largest companies. More stimulus will likely take European markets upward as eurozone companies will benefit from a weaker euro; this gives investors an interesting opportunity as the Federal Reserve's plans to move in the opposite direction has made U.S. markets less appealing.


Related Articles (EZU + FEZ)

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