There is finally a definitive date for the long-awaited tapering to take effect. This has been stated by the president of the European Central Bank (ECB) Mario Draghi in a conference in which he has detailed how this action will be developed in the financial markets. It was something that market agents expect and that there is finally a fixed date for managers to channel customer savings. It will be from this month of October, when the forecasts indicated that it would be from next year. In any case, the calendar is already underway and it will be very convenient for you to know it from now on.
First of all, it will be necessary to clarify the real meaning of what tapering is. Well, it is simply the stimulus withdrawal on the economies of the euro zone countries. You should remember that the European bank of issue has been injecting liquidity into the economy in recent years. Until the time has come to withdraw it as a result of the good situation of the main economic parameters in the old continent. With a projection of economic growth above expectations. Tapering has served, in the opinion of some financial market analysts, so that European equities have remained bullish in this period. Now it will be necessary to verify if it has been or not in an artificial way.
Of course, there is little time left for tapering to begin and one of the most relevant aspects of its application will be how it affects financial markets, especially those of equities. Not surprisingly, there is fear that it could be the trigger for the main indices to change their trend and develop a downward spiral that can lead to the securities trading at much more competitive prices than up to now. There are not many days left to know the reaction of the equity markets and what are the investment strategies that small and medium investors should apply from now on.
Tapering since October
The start of the economic stimuli will be from this month of October. However, it is not definitive, as stated in the ECB's statement. Unless some unexpected event occurs. Aspect that cannot be ruled out with several events that can develop in a short period of time. It cannot be forgotten that the general elections in Germany are just around the corner. And any new results can affect the decisions that can be made in Frankfurt. On the other hand, there is also the pre-war conflict in North Korea and that can ruin any initiative by the monetary authorities of the old continent.
Another of the most noteworthy aspects that affect this measure of special economic importance is that any lag that may occur in the economic data of this economic area of great importance in the world. But if nothing happens, the dates are already stipulated and it will be from October when the long-awaited tapering begins. At this time, investors will be assessing their impact to try to make the savings profitable. Because even in this situation real business opportunities will appear that you should take advantage of to increase your profits in the financial markets.
Stimulus withdrawal program
In any case, the financial markets will still have to wait a little longer to see the real withdrawal of these stimuli. Not surprisingly, the ECB warns that until December will invest 60.000 million euros each month in the acquisition of sovereign bonds and company securities. It cannot be forgotten that the main objective of the application of these economic stimuli was to encourage the recovery of the euro area. Something that in the opinion of the European monetary authorities has already been achieved. And they estimate that there is no longer a need to continue injecting more liquidity into the different financial markets.
From this general scenario, neither can this decision be disassociated with the evolution of the euro against the rest of the international currencies. And very especially with respect to the US dollar since the growth of the changes has obtained its maximum value in many years. To the point of reaching 1,20 euro levels compared to this coin. A factor that will have been present in the decision on the application of tapering from this month of October.
A healthy economy in the euro zone
Until now, the European Central Bank is of the opinion that the evolution of the economy is being satisfactory from most points of view. To the point that the forecasts are highly favorable in this regard. Their estimates indicate that the economic growth for 2017, 2018 and 2019 it will move in a band that oscillates between 1,7% and 2,2%. 1,8% and 1,7%. These are forecasts that in any case are higher than expected in previous months and that have served to make this important decision. With a more than notable impact on the financial markets, and especially the stock market sector.
While on the contrary, the estimates are that inflation will fall in the coming months in a large part of the countries of the euro zone. In this sense, official forecasts show that in this period there may be go from 1,5% to 1,2%. With which some strength could be subtracted from the price of the single European currency. Perhaps one of the biggest problems that exist in the markets of the old continent. By making European companies less competitive in their exports.
Impact on equities
In any case, other implications of this relevant measure is how it will affect the equity markets. In this sense, there is a certain fear on the part of financial agents that it could negatively affect the European stock markets. Where it generates that the selling positions are imposed with a remarkable clarity on the buyers. If so, there is no doubt that we were going to see significant corrections in the share price. Although it would certainly not be in October, but already from next year. This was one of the scenarios posed by some of the most famous analysts of the international financial markets.
If this scenario arrives, there is no doubt that one of the most affected sectors would be the banks. To the point that they could develop important falls and point to a change in the trend that they showed until now. In any case, it is one of the scenarios that small and medium investors should foresee from now on. It will not hurt that caution in stock market operations is the common denominator of the actions from the last months of this year. Because in effect, there is a lot of money that you can leave on the way if these expectations are fulfilled in the scenarios made with equities.
Waiting time to operate
All these factors influence you to protect your savings and avoid really unwanted situations. Because the potential that they can develop in their depreciation can be very worrying for your personal interests. Where certain sectors may perform worse than the rest. In particular, listed companies that have a higher level of indebtedness and tapering may not be good news for their business interests. But rather the opposite, by enhancing your financing problems. It is precisely from these values that you have to flee and in no case open positions in the market proposals.
In any case, tapering can become the ideal scenario to generate greater volatility in financial markets. Where only investors with more experience will be able to get more out of their operations in equities. Because you can't forget that the oscillations will be greater that until now. With a much more active market. Although on the contrary, it may be a time that is used by many users to undo their positions and wait for a better time to channel investments.
On the other hand, it will be very important that this withdrawal of economic stimuli can be analyzed with the possible arrival of a new trend in the values, sectors or indices of the stock market. Because as a whole, a new scenario can be created where it will be determined whether it is prudent to enter or exit the values of the European markets. Period that could last many years and that will require a change in the strategy that you are using until then. To the point that it will be more necessary than ever for you to have to adjust your portfolio. Unless you want to take more than one negative surprise that may affect your checking account balance.