The ECB confirmed on Thursday that it was committed to its €80 billion a month bond buying programme with the goal of driving Eurozone inflation closer to its 2% target. The ECB appears to be years away from hitting its inflation target which ultimately means rates across the Eurozone could be kept lower for a much longer period than previously thought. The latest reading of the Flash Markit Composite PMI, seen as a good sign for growth, for the Euro area came in at 53 in April, slightly down from 53.1 in March.
The ECB is potentially heading down the same path as the Bank of Japan keeping interest rates near zero for a prolonged period of time. The obvious danger associated with this type of monetary policy is that markets are more prone to generating a leveraged reach for yield by traders and speculative asset-price boom-bust scenarios. This is precisely the problem which created the difficulties that led to the Global Financial Crisis. The shrewd trader will spend time analysing markets that are overvalued and in ‘bubble territory’ to place themselves in a position to profit when the run finally comes to an end.
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