European stock markets rise on improved economic expectations

Stocks in Europe rose on mounting expectations that the ECB will commence quantitative easing.

European stock markets shares rose on Wednesday to end a three-day decline, following data that illustrated prices in Europe are falling.

Inflation in Europe was shown to contract by 0.2 per cent on a yearly basis, the first time inflation has been negative since October 2009, according to official statistics from Eurostat.

While this increases the risk that the single currency region will enter a period of deflation, investors took heart from the fact that the European Central Bank (ECB) will be under extra pressure to start their much anticipated bond-buying scheme.

The likelihood of near-term inflation reaching the ECB’s target of two per cent grows more unlikely and will force the central bank’s hand to finally begin their unusual stimulative measures, better known as quantitative easing.

Stock markets in Europe climbed on the sentiment, also helped by a rebound in oil prices after Brent crude briefly dipped below the $50 per barrel level.

However, while the ECB is on the verge of launching mass purchases of government bonds with new money, they have yet to gain the backing of the EU’s strongest economy, Germany. Berlin is worried that quantitative easing will undermine the need for reform of those struggling economies of Europe, which could lead to a new crisis further down the line.

Germany’s economic recovery continues to outpace that of its other member states, as was further evidenced today as the German unemployment rate sunk to a record low of 6.5 per cent, while Italy’s labour statistics showed unemployment rising to a record high of 13.4 per cent in November.