The onset of a European recovery and quantitative easing program has shifted investor mood away from the U.S. in the first three months of the year, said Stephanie Flanders, chief market strategist for Europe at J.P. Morgan Asset Management.
While investors came into 2015 feeling confident about the U.S. economy, the strong dollar has weighed on earnings growth.
“If you think back to the beginning of the year, the world has changed, and a lot of the concerns we had have not gone away but have changed (due to) policy developments,” Ms. Flanders said.
Speaking at a briefing in London on Wednesday, Ms. Flanders said the European Central Bank's decision to launch a €60 billion ($66 billion) per month bond-buying program, which began in March, “has changed the world. Of course, add to that the oil price fall.”
Now, rather than the U.S. being the “only game in town,” growth in Europe has converged — and is overtaking the U.S.
However, whether generally “looser” monetary policy is a net positive for the world is yet to be seen. “The point of that monetary policy (divergence) was to narrow … to have less of a gap between countries. But we were thinking then of leveling up rather than down. That is what I mean about whether it has made the world a more positive place,” Ms. Flanders said.
“If there was a good time to come late to a party, the ECB has chosen it. The timing (of the QE program) is so that there were already a lot of other things going on, not least the oil price fall, improvement in credit fundamentals and reduced austerity. All of that was already there, and to us was suggesting some positive things about the European economy, at least relative to the recent past, even before we got the formal announcement of QE.”
Whether quantitative easing works, of course, is yet to be seen, Ms. Flanders said. “Quantitative easing is like Santa Claus … you have to believe in it to get the presents. It's not that it is not real, but how much it is (effective) is dependent on expectations and how markets are viewing it.”
