Analysis and Opinion »

German Stocks Soar Following ECB Decision; Shrug off Greek Elections

David Becker
Share on StockTwits
Published on

Eurozone stock markets shrug off Greek election result. Equity markets quickly recovered earlier losses and while Greek 10-year yields climbed 45 basis points, Italian and Spanish yields are little changed.

This confirms that contagion risks from uncertainty about the future of Greece in the Eurozone are limited, as the ECB stands buy to support markets with the OMT and the new sovereign bond purchase program. German stocks reflected by a hedge wisdom tree ETF soared toward 52-week highs.

The big day finally came last week and Mario Draghi announced sovereign bond QE for the Eurozone, larger than expected in size, but according to the ECB’s capital key and with only limited risk sharing. If nothing else the program will help to re-inflate the Eurozone via the exchange rate angle and give a lift to growth through improved exports, but the move doesn’t solve the Eurozone’s underlying problems. At the same time it highlights the growing divergence of views among policy makers and EMU weariness not just in peripheral countries. Anti-EMU forces in Germany will likely gather strength after last week’s decision, a development that should not be underestimated.

So even in the crisis countries, the ECB’s latest round of measures only buys time and admittedly Draghi also once again called on governments to get their act together, even as he removed any market pressure on governments to do so. So the massive cash injection will help to lift inflation via the exchange rate angle, which in turn will also provide some boost for exports and overall growth. It doesn’t solve the Eurozone’s underlying problems, however, and will give further ammunition to the growing anti-EMU sentiment in Germany, which shouldn’t be underestimated.

The DXGE soared toward 52-week as positive momentum accelerated. The MACD (moving average convergence divergence index) recently generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.

Share on StockTwits