# Eurozone equity rally remains on – but ECB set to change monetary policy’s direction of travel Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-07-20 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Eurozone equity rally remains strong despite ECB hints Meta Description: Leading analyst confirms ECB monetary policy changes, but Eurozone stocks remain strong with 'more of the same' expected for the rest of 2017. URL: https://financedigest.com/eurozone-equity-rally-remains-on-but-ecb-set-to-change-monetary-policys-direction-of-travelhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/graphicstock-serious-young-1736843683298-compressed.jpg) The Eurozone [equity rally](https://www.financedigest.com/citi-expects-global-equities-to-rally-18-by-end-2023.html "Citi expects global equities to rally 18% by end-2023") remains on, despite hints that the ECB is preparing to change its monetary policy, affirms a leading investment analyst. The comments from Tom Elliott, International Investment Strategist at deVere Group, one of the world’s largest financial services organisations, come as the European Central Bank (ECB) releases the minutes from its latest meeting on Thursday. Mr Elliott observes: “Investors should not be surprised by the change in tone of the ECB’s latest minutes, released today. They confirm what we know: that the direction of travel for [central bank’s](https://www.financedigest.com/central-banks-opt-for-shock-and-awe-to-tame-inflation.html "Central banks opt for shock and awe to tame inflation") monetary policy is changing. But the pace of that change is likely to be glacial, given weak regional [inflation pressures and a desire to avoid repeating the premature rate hike](https://www.financedigest.com/uk-inflation-hits-9-4-bolstering-bets-on-big-boe-rate-hike.html "UK inflation hits 9.4%, bolstering bets on big BoE rate hike") of 2011. The Eurozone equity rally remains on. “The [minutes](https://www.financedigest.com/energy-stocks-boost-european-shares-ahead-of-ecb-minutes.html "Energy stocks boost European shares ahead of ECB minutes") of the 7-8th June meeting of the ECB’s Governing Council in Tallin confirm that ECB policy is likely to be ‘more of the same’ over the remainder of 2017. That is, no change in interest [rate policy](https://www.financedigest.com/key-fed-official-sees-rates-liftoff-in-2023-as-policy-debate-heats-up.html "Key Fed official sees rates liftoff in 2023 as policy debate heats up") and continued monthly purchases of EUR 60bn of bonds through its asset purchase program.” He continues: “European [stocks](https://www.financedigest.com/mutual-funds-vs-stocks-which-is-better.html "stocks") fell on the release, after market commentators (ie, Reuters) noticed that a discussion took place over whether the long-running commitment to extend and/or expand the bond purchase programme should be dropped, in light of strengthening GDP growth in the euro zone. The Council decided to keep the commitment, for the time being. “This should [come](https://www.financedigest.com/why-is-accounting-coming-up-short-when-it-comes-to-new-hires.html "Why is Accounting Coming Up Short When It Comes To New Hires?") as no surprise to anyone except stock brokers anxious to create a little fear and so churn client accounts.” Mr Elliott goes on to say: “It reflects a shift in bias within the ECB away from a [fear of deflation, towards a fear of inflation](https://www.financedigest.com/polish-e-commerce-leader-allegro-trims-forecast-over-inflation-fears.html "Polish e-commerce leader Allegro trims forecast over inflation fears"). This was expressed by ECB head Mario Draghi last week in Portugal, a speech that investors also chose to over-burden with their own fears of imminent [tighter monetary policy](https://www.financedigest.com/uks-ftse-100-dips-on-scope-of-tighter-monetary-policy-informa-jumps.html "UK’s FTSE 100 dips on scope of tighter monetary policy; Informa jumps"). “But while the direction of travel for ECB monetary policy may be reversing, the likelihood of an actual reversal happening soon, or even this year is slim. [Euro zone CPI inflation](https://www.financedigest.com/stocks-under-pressure-as-euro-zone-inflation-hits-13-year-high.html "Stocks under pressure as euro zone inflation hits 13-year high") is actually falling, figures released on Friday show that in June it fell to 1.3% year-on-year (from 1.4% in May). This is well below the [ECB’s target rate](https://www.financedigest.com/stocks-dip-euro-volatile-after-ecb-rate-hike.html "Stocks dip, euro volatile after ECB rate hike") of 2%. The ECB is highly conscious of the policy error it made in 2011, when it prematurely raised rates, only to see another [recession follow in the euro zone](https://www.financedigest.com/euro-zone-october-pmi-adds-to-evidence-bloc-is-heading-for-recession.html "Euro zone October PMI adds to evidence bloc is heading for recession"). “Stock [market](https://www.financedigest.com/frothy-stock-market-valuations-a-dash-for-cash-and-digital-money-all-on-bank-of-englands-risk-radar.html "Frothy stock market valuations, a dash for cash and digital money – all on Bank of England’s risk radar") investors might instead like to focus on this paragraph from the minutes: ‘Moving to the equity markets, the decline in US long-term yields and the continued low level of yields in the [euro area had remained generally supportive of stock market](https://www.financedigest.com/yes-winning-the-euros-really-can-help-your-stock-market.html "Yes, winning the Euros really can help your stock market") developments. Moreover, equity valuations in both the United States and the euro area remained supported by solid corporate earnings and favourable data. Gains in stock prices had been relatively broad-based, covering both financial and non-financial [firms](https://www.financedigest.com/prioritising-employee-wellbeing-in-finance-firms-through-learning-and-development.html "Prioritising employee wellbeing in finance firms through learning and development"). The improved economic outlook was thus much more visible in global equity markets than appeared to be the case in [bond](https://www.financedigest.com/britains-bond-market-turmoil.html "Britain’s bond market turmoil") markets. “Implied [market volatility](https://www.financedigest.com/analysis-oil-prices-turn-more-volatile-as-investors-exit-the-market.html "Analysis-Oil prices turn more volatile as investors exit the market") was also at historic lows, suggesting no concern about a sharp adjustment. Indeed, the rally in the [stock markets](https://www.financedigest.com/online-trading-and-stock-markets.html "Online Trading and Stock Markets") appeared to be fairly robust to variations in political uncertainty, which no longer seemed to be factored in.” deVere Group’s International Investment Strategist concludes: “The Eurozone equity rally is still in place, and still supported by the ECB.” --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---