ETFs
ECB rate cut boosts European stocks and these Europe-focused ETFs in the US
Key takeaways
- The European Central Bank (ECB) on Thursday lowered its benchmark interest rate for the first time in five years, after inflation slowed in the euro zone.
- European stocks surged following the rate cut, taking the Stoxx 600 index to a record high on Thursday.
- The rise in European stocks has boosted many Europe-focused exchange-traded funds in the United States, such as the Vanguard FTSE Europe ETF.
The European Central Bank (ECB) lower your reference interest rate Thursday for the first time in five years, strengthening European actions and many Europe-centric actions exchange-traded funds (ETFs) in the USA
The ECB cited progress on inflation to justify its decision to cut rates, with inflation having fallen significantly in the eurozone since the ECB last raised rates in September. Economists at Wells Fargo predict that the ECB will keep its key rate stable in July, but could cut it again in October.
The ECB’s decision on Thursday follows The Bank of Canada’s decision to cut rates on Wednesdayalthough the U.S. Federal Reserve is unlikely to follow suit at its meeting next week, with U.S. officials saying they need more confidence that U.S. inflation is sustainably near their target before cutting rates.
European stocks jump, propelling the Stoxx 600 to a record high
European stocks jumped following the ECB rate cut, lifting the Stoxx 600 the index hit a record high on Thursday before closing slightly off the high. The Stoxx 600 tracks the performance of 600 large, mid and small cap stocks across 17 European countries and is often cited as a close European alternative to the S&P500 in the USA
American Depository Receipts (ADRs) Many of the largest European companies traded on U.S. exchanges gained Thursday. Among them, Dutch semiconductor equipment manufacturer ASML (ASMLwhich is the second component of Stoxx 60, and the Danish drugmaker Novo Nordisk (NVO), both ADRs increasing by 1%. German software giant SAP (SAP) saw its ADRs rise by just over 2%.
These Europe-Focused ETFs Also Got a Boost
As European stocks have rallied, Europe-focused ETFs in the U.S. have received a boost, with the $19 billion Vanguard FTSE Europe ETF (VGK) up 0.4% over the day. The fund’s largest holding is Novo Nordisk at 3.3%, followed by ASML at 2.8% and Swiss food conglomerate Nestlé (NESN) at 2.2%.
The iShares MSCI Eurozone ETF (EZU) has $8 billion in assets and gained 0.3% on Thursday. The fund also counts ASML as a major holding, alongside luxury fashion heavyweight LVMH Moët Hennessy Louis Vuitton (LVMUY).
The $1.7 billion iShares MSCI Europe Financials ETF (EUFN) was up 0.9% on Thursday as investors rushed into European financial stocks. The fund includes HSBC (HSBC) and the Spanish Santander (SAN) among its main titles.