Activity happening across the pond has caught investors off guard. The 18-country eurozone saw Gross Domestic Product (GDP) increase at a 0.6% annual pace in the third quarter. Surprisingly, the fastest growing economy in the eurozone was Greece, which grew at a 2.8% annual pace. Meanwhile, mighty Germany only grew at a 0.3% annual pace. Italy’s GDP actually contracted at a 0.4% annual pace.
In response to this, the European Central Bank (ECB) announced that it may resort to unconventional measures, including full-blown quantitative easing, to help revive the eurozone economy. Specifically, after the ECB’s monthly meeting, ECB President Mario Draghi stated that its asset purchases might return to levels not seen since 2012. Draghi’s comments essentially spooked currency traders and sent the euro tumbling to a 26-month low against the dollar.
To be clear, the eurozone is not slipping into a recession; in fact, I expect the area’s exports to rise in the fourth quarter. A weak euro is making many eurozone countries more competitive on the world stage.
Importance of the Eurozone Activity
The ECB has pumped so much money into its banking system that its member banks are fleeing to the U.S. in search of a stronger currency and higher real interest rates. In turn, this is undermining our Federal Reserve’s ability to manipulate interest rates. Plus, this “euro glut” is now squelching interest rates globally and raising the risk of deflation in countries with strong currencies, like the U.S.
With the risk of deflation mounting, there is little chance that the Fed will be raising key interest rates any time soon. This is great news because the low interest rate environment benefits the stock market because it enables companies to borrow at ultra-low rates all over the world and aggressively buy back their stocks. This further boosts companies’ underlying earnings per share and keeps liquidity in the market.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
