Indicator readings prove Draghi’s point
On Monday, March 17, ECB (European Central Bank) chief Mario Draghi stated that declining oil prices benefit Europe. Well, indicator readings just proved his point on March 23.
Consumer confidence hits an eight-year high in the Eurozone
The European Commission reported consumer confidence numbers for the Eurozone for March 2015. According to the report, the flash estimate of the consumer confidence indicator increased sharply in the Euro area by 3.0 points to -3.7 in March compared to the -6.7 recorded in February. The consumer confidence numbers smashed market expectations of a -6 score, recording their highest level since 2007.
Declining oil prices benefit the Eurozone
Consumers in the Eurozone have benefitted from the decline in oil prices, which has helped boost real incomes. The ECB’s quantitative easing (or QE) program has also helped boost confidence in the Eurozone’s recovery and growth among investors. Consumer confidence helps boost consumer spending, which is key to economic growth.
Stock markets in the euro area, which are a leading indicator of economic growth, have been rallying so far this year, with the Europe-tracking iShares MSCI EAFE (EFA) outperforming the US-tracking SPDR S&P 500 ETF (SPY). The EFA has returned about 7.79% since the beginning of the year, while SPY gained 1.15%. US energy firms such as Chesapeake Energy Corporation (CHK), Ensco (ESV), and Noble Corporation (NE) have lost about 33%, 29%, and 28% over the last month on account of falling energy prices. The fall in oil prices and the currency war have restrained stock market growth in the US (IVV) so far this year.
Moving East, we see that the factory sector in China contracted by a good extent in March. Let’s take a look.