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Euro area equity markets and shifting expectations for an economic recovery

Author

Listed:
  • Ampudia, Miguel
  • Kapp, Daniel
  • Kristiansen, Kristian
  • Nicolay, Cornelius

Abstract

After a pronounced decline until mid-April 2020, near-term earnings growth expectations derived from surveys and derivatives pricing in euro area equity markets appear to have troughed as the economic recovery is expected to gradually take hold. At the same time, a number of indicators show that investors remain concerned about a more protracted weakness in the euro area economy. Moreover, and despite a significant improvement since the announcement of the pandemic emergency purchase programme (PEPP), market participants continue to price significant downside risks in equity markets in a highly uncertain environment. Nevertheless, equity prices continue to increase against the backdrop of a stabilisation in risk sentiment, global policy support, and the fact that tail risks of an imminent global financial crisis have faded to some extent. However, if current expectations of a recovery in earnings turn out to be overly optimistic, there will be substantial risks of significant renewed declines in equity prices. JEL Classification: E44, E52, G12, G15

Suggested Citation

  • Ampudia, Miguel & Kapp, Daniel & Kristiansen, Kristian & Nicolay, Cornelius, 2020. "Euro area equity markets and shifting expectations for an economic recovery," Economic Bulletin Boxes, European Central Bank, vol. 5.
    • Handle: RePEc:ecb:ecbbox:2020:0005:4
    Note: 2445760
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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/focus/2020/html/ecb.ebbox202005_04~1b3e9fcb8f.en.html
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    Cited by:

    1. Deimante Teresiene & Greta Keliuotyte-Staniuleniene & Yiyi Liao & Rasa Kanapickiene & Ruihui Pu & Siyan Hu & Xiao-Guang Yue, 2021. "The Impact of the COVID-19 Pandemic on Consumer and Business Confidence Indicators," JRFM, MDPI, vol. 14(4), pages 1-23, April.

    More about this item

    Keywords

    COVID-19; Equity markets;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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