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Eurozone Equity Market Returns          Q4          LTM

DAX 30 (Germany)                                 - 13.8%     - 18.3%

CAC 40 (France)                                      - 13.6%     - 8.0%

FTSE MIB (Italy)                                      - 11.4%      - 14.0%

IBEX 35 (Spain)                                       - 8.0%        - 11.5%

MSCI Europe (ex-UK) Index                  - 11.8%      - 11.3%


  • Economic activity data continues to disappoint
  • ECB brings its bond buying program to an end
  • Italian budget dispute is resolved
  • Equity markets tumble

Economic activity data continues to disappoint as PMIs surprise to the downside. Purchasing Manager Indices (PMIs) are leading indicators of economic health and they were deteriorating in Europe throughout 2018. The last reading in December was the lowest level seen by the manufacturing sector since 2016, and lowest for the services sector since 2014. Despite this, they both pointed to continued expansion, albeit at a much slower rate. Europe is a large global exporter which has been impacted by the slowdown in global growth, fallout from the trade war and also, more specifically, the Diesel emission scandal, as Europe is a large exporter of automobiles.

ECB brings its bond buying program to an end after nearly 4 years. The European Central Bank (ECB) had been buying €30bn of bonds per month to keep borrowing rates low and support financial confidence. In all, it bought over €2trillion since the program began and although the stock of bonds will not increase anymore, it will not reduce either as they still intend to reinvest the proceeds from maturing bonds.  The announcement from ECB President, Mario Draghi, was accompanied by a statement that interest rates will remain highly accommodative to support growth.

Italian budget dispute is resolved after a long standoff with Brussels. After elections propelled populist Five Star and League Parties into a ruling coalition, they entered a standoff with Brussels when their budget plans did nothing to tackle their enormous debt pile. Italy’s debt is around 130% of its annual national output – well above the ceiling of 60% imposed by the European Commission (EC). Italians, fed up of the impacts of austerity under previous governments, voted for the populist parties as they promised more spending to alleviate poverty and increase social security payments. As Italy’s cost of borrowing rose during the dispute, the Government eventually reached a deal with the EC to reduce their spending plans by several billion Euros.

Equities tumble amidst global growth scare. European markets fell with other developed equity markets during the period for many of the same reasons given above: fears over trade tariffs; fears over a slowing Chinese economy and a tightening of global liquidity conditions. As with the UK, the European stock market has a bias towards large international businesses and it is often more correlated with global growth than domestic growth. It also has a large manufacturing export sector that is particularly exposed to China.

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." -- George Soros