The European Central Bank (ECB) has adopted a symmetric inflation target of 2% over the medium term. This means negative and positive deviations of inflation from the 2% target are equally undesirable. The ECB has committed to maintaining a persistently accommodative monetary policy stance to meet this target.
Accommodative monetary policy is a philosophy to increase the amount of money in the economy in relation to the average national income. Usually, interest rates are low or lowered to stimulate banks to grant more credit to private citizens and corporations. Additionally, governments will continue to by government debt (think UK Gilts).
This policy in addition to the prospective growth caused by most of Europe returning to “business as usual” is creating confidence in the stability of European markets leading to significant growth from late July through to early September.
Following this rise, concerns surrounding the collapse of China’s second-largest property developer led to short-term drawbacks in global financial markets including European markets. European tech stocks were also further affected by U.S. bond yields which placed pressure on growth pockets.
European markets faced further short-term uncertainty in late September due to Germany’s election on 26th September with the unexpected result of the Social Democratic Party (SPD) gaining the largest share of the vote by a slim margin to Angela Merkel’s right-leaning Christian Democratic Union and Christian Social Union.
While short-term concerns left the European markets to withdraw, the outlook and long-term prospects remain positive for the future of European markets indicated by the German consumer confidence for October improving according to the Consumer Sentiment Index published by the GfK Institute. Moreover, The ECB also reiterated its active stance on monetary policy in the medium-term along with the Pandemic Emergency Purchase Programme (PEPP).
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