The European Central Bank met this week and left interest rates unchanged. That was expected. Mario Draghi the president said they will continue to reinvest the principal payments from their recently completed bond-buying program for an extended period beyond the time when the ECB will increase interest rates. Since they plan on not increasing interest rates this year that tells us they are going to be dovish concerning their monetary policy.
The EU continues to have a downbeat outlook on their economy. The general feeling is that they will ‘not’ fall into a recession even though several countries appear to be headed into, or already are in recession. Mario feels confident that they will skirt that danger, but of course he would say that wouldn’t he.
The IMF downgraded world economic growth for the fourth time in nine months to 3.3% from 3.5% projected in January. In July of last year, they projected 3.9%. They cited a number of gloomier factors, the trade problem between China and the U.S., Germany’s auto sector, tighter credit in China and financial tightening and normalization of monetary policy in the U.S. and EU.
The U.S. stock market so far is not buying the slowdown worldwide as an issue or at least not as a long term issue as it is still strong. I think the China trade deal with the U.S. is key. The investors feel that will be settled soon. If not, expect a very strong correction maybe leading into a bear market.