BlackRock has closed its 'underweight' position in European equities and credit, and upgraded European government bonds to 'overweight,' in anticipation of a 'decisively dovish' shift in policy from the European Central Bank (ECB).
Analysts with the world's largest asset manager anticipate that Thursday's monetary policy meeting will lay the foundations for the ECB to deploy a fresh stimulus package in the coming months, against a backdrop of a "stabilizing growth outlook and persistent inflation undershoots."
In a note published Tuesday, BlackRock's financial conditions indicator highlighted a slow recovery in euro zone economic conditions since the debt crisis in 2011, and projected that stubbornly low inflation would twist the arm of the central bank into providing more stimulus in the coming months. BlackRock has recently downgraded its global growth outlook on the back of macro uncertainty stoked by trade and geopolitical tensions. The growth outlook weakened primarily in the U.S. and China, the two combatants in a drawn out trade war, but steadied at below-trend levels in the euro zone.
"A 'lower for longer' environment should support credit as a source of income in a region where many government bond yields of core countries are negative."
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