Eurozone Comeback Continues

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What's going on?

The eurozones economy continues to accelerate and prices are picking up too (a.k.a. inflation). All eyes are now on the European Central Banks (ECB) reaction

What does this mean?

Europes economic growth has accelerated in 2017: it grew 0.6% in the second quarter according to figures released on Tuesday. That means its grown faster so far this year than America has and about twice as fast as Britain.


Meanwhile, a key measure of inflation in the eurozone hit a four-year high in June, according to data out on Monday (suggesting people and companies are willing to pay more for products).

Why should I care?

The bigger picture: Stronger growth and higher inflation make it more likely that the ECB will pare back its extremely supportive policies.

The ECB is buying an extraordinary amount of bonds each month in an effort to keep interest rates in the eurozone low (thereby boosting economic activity click here for more background). So far, growth has been picking up but inflation has been rather tepid. If inflation is pushing sustainably higher and if growth can continue at its current pace, the ECB will be more likely to pare back its support later this year (for one, it wants to pare back those policies so that it can implement them again if the economy turns sour).


For markets: Expectations of higher interest rates have already pushed the euro up by 12% versus the dollar this year.

Global investors like to invest in economies that they believe will pay them a greater future return (often in the form of higher interest rates). As such, they have moved money into Europe this year as its economic prospects have improved and that pushes up the value of the euro. This has created a headwind for European stocks partly because the overseas profits of European companies are now worth less when translated back to euros. This is one major reason why European stocks have been performing worse than American stocks lately!

Originally posted as part of the Finimize daily email.

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