European stocks will bounce

More monetary easing may do little to help the eurozone's ailing economy, but it is good news for European stocks.

Eiffel Tower aerial view © iStockphotos

France's stocks have outstripped Germany's this year
(Image credit: Eiffel Tower aerial view © iStockphotos)

"The tables have turned" between Paris and Berlin, says Silvia Amaro on CNBC. With Europe's largest economy on the brink of recession, analysts are looking to France, a country with better demographics and a more robust reform agenda, to drive European growth.

France's CAC40 index has served up an impressive 21% gain this year, outstripping the 17.5% rise in Germany's Dax. The broader pan-European STOXX Europe 600 index is up 16.6% so far this year.

Teutonic Torpor

A brighter spot is the eurozone jobs data, notes Tom Rees in The Daily Telegraph. At 7.4%, unemployment is "within a whisker" of the record low achieved in 2007. Wider European Union unemployment is at its lowest level in 19 years. That should provide a "much-needed breather" for the service sector even as manufacturing sags, says Bert Colijn of ING.

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The European Central Bank (ECB) has reacted to the slowdown with another wave of easy money, notes Mohamed El-Erian in The Guardian. Incoming president Christine Lagarde boasts a formidable CV, but must deal with growing criticism of the "same old medicine" of negative interest rates and bond buying.

What Europe really needs is for politicians to step in and deliver structural reforms. The likes of Germany should also loosen the purse strings, rather than offloading the job onto central bankers.

Some may think that unlikely, but investors should not underestimate the political will in European capitals, as Simon Nixon points out in The Times. The EU is in a stronger position now than it was three years ago. In Greece and Italy two countries at the centre of concerns over financial stability populist governments have been ousted in favour of "mainstream pro-Europeans" this year. Rising tensions between Washington and Beijing are also causing member states to "bind themselves" together more tightly than ever.

More monetary easing will do little to help the economy, but it is good news for investors: liquidity usually finds its way into markets. Much of the bad news also appears to be in the price: the German market trades on a cyclically-adjusted price-to-earnings ratio (Cape) of 17.2 and Spain, where growth has remained solid, trades on just 13.4.