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Capital Markets

Hedging against the unwind of QE in Europe

Amid rising uncertainty over when the ECB will end quantitative easing and the likely extent of rate rises in the eurozone, the realization dawns that some investors could suffer devastating losses.

At the end of August, Schroders became the latest investor to upgrade its growth forecasts for the euro area – to 2.1% for 2017, up from 1.8% previously and to 1.9% for next year up from 1.8%.

As fears over rate rises grow, ECB president Mario Draghi affirmed at the Kansas City Federal Reserve shindig at Jackson Hole that: “The global recovery is firming up.” Draghi was careful in public to point out that while the US recovery is more advanced, in Europe “the consolidation of the recovery is at an earlier stage”. But minutes of the July meeting of the ECB governing council, published in mid-August, show at least one unnamed member arguing that economic expansion is increasingly self-sustaining and hence has become less dependent on monetary policy accommodation.

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