In a report on Monday, the International Monetary Fund said growth across the European region -- which includes the euro area as well as developing economies in central and eastern Europe -- is having a positive spillover effect on the rest of the world. It also said those brighter prospects accounted for the bulk of the upward revision to its global outlook in October.
For the euro area, economists surveyed by Bloomberg have raised their growth forecasts eight times this year. Data due Tuesday is predicted to show the region gained more momentum in the third quarter by expanding 0.6 percent, faster than the long-term trend, according to Bloomberg Economics.
“More than four years into the current expansion, most indicators signal the euro-zone economy is still somewhere around mid-cycle,” Talavera said. “Absent an unexpected shock, we should see several more years of economic growth.”
The ECB has bought €2.373 trillion of government and corporate bonds since late 2014 and is only now beginning to talk about tapering. Government bond yields are at rock bottom levels and German yields are still negative out to 7-year maturities. The Euro collapsed as the introduction of QE was priced-in and even after an impressive breakout this year, it is still only a fraction of where it traded before 2014.
Together these factors have helped to boost the Eurozone’s export oriented manufacturing sector which has been a particular benefit for Germany. The DAX Index has pulled back of the last five sessions to at least partially unwind its short-term overbought condition. However, a sustained move below the trend mean would be required to question medium-term scope for additional upside.
The Euro STOXX Banks Index steadied today from the region of the lower side of its six-month range and potential for additional higher to lateral ranging can be given the benefit of the doubt provided it holds the 125 area.