First Trust Eurozone AlphaDEX ETF (FEUZ)

Europe's macro outlook is shifting. After years of fiscal restraint and fragmented policy, the region is entering a new chapter - one centered on pro-growth fiscal policy, energy security, and capital-market reform.

While U.S. investors may be disappointed with this year's choppy first-quarter performance, European investors celebrate double-digit broad index returns. The Euro Stoxx 50 Index is Europe's blue-chip index covering 50 stocks from 11 Eurozone countries.

The European Central Bank cut interest rates by 25bps, bringing the deposit rate down to 3.75%. Inflation is expected to come in at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.

Declining inflation and slower growth have contributed to the rising potential for rate cuts in Europe. Eurozone core inflation has been coming down more quickly than similar measures in the U.S. and the U.K. If the euro were to weaken and drop through parity, that might give the ECB pause about cutting rates.

LONDON--(BUSINESS WIRE)-- Date TIDM ISIN Code Shares in Issue Currency Net Asset Value NAV/per Share First Trust Eurozone AlphaDEX UCITS ETF 17.05.2024 FEUZ IE00B8X9NY41 1,671,193.00 EUR 70,614,113.88 42.254

Eurozone GDP grew by 0.3% in the first quarter, and that's the strongest growth since the third quarter of 2022 when the energy crisis started.

Business activity in the euro area came close to stabilising in March, as provisional PMI® survey data registered only a marginal decline in output of goods and services.

The eurozone escaped a technical recession, and a number of indicators suggest the economy is now bottoming out. The ECB is expected to cut rates from June onwards, but more cautiously than the market is currently anticipating.

The European Central Bank left interest rates unchanged, without conveying any urgency to start cutting rates in the next few months. It seems most likely that June or July would be the preferred time to start cutting rates.

Business activity in the euro area fell at the slowest rate for six months in January, according to provisional PMI survey data. The PMI in fact suggests that the Eurozone is enduring its deepest contraction since 2013 (if early pandemic months are excluded), albeit with recent months hinting at a bottoming out of the downturn.

Europe managed to avoid an energy crisis despite the Ukraine war, with inflation under control and interest rates peaking. The European Central Bank is expected to lead interest rate cuts, followed by the Bank of England and Scandinavian central banks.

The first question for next week's European Central Bank meeting is how the Bank will react to current market pricing. The second, however, is why should the ECB react to current market pricing.

Like their peers in the US, European stocks enjoyed quite a rally over the last two months of the year. In early December the STOXX 600 broke out above the resistance of the summer highs, and while momentum has slowed in the last couple of weeks, earlier this week the index experienced a golden cross.

As European inflation rates converge with targets, markets expect rate cuts. But central banks are set on a decisive victory over inflation. As expected, the Bank of England left the bank rate unchanged at 5.25% at its December meeting.

The European Central Bank (ECB) kept its key policy rates on hold today for the second consecutive meeting. The interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility remain at 4.5%, 4.75% and 4.0%, respectively.

The ECB will almost surely keep rates on hold at the December meeting. The question is to what extent it will align with the market's aggressive pricing for rate cuts in 2024.