QE program coming from ECB soon

European indices are touching seven-year highs on Friday, boosted by the fact that March is days away and with it comes the much anticipated quantitative easing (QE) program from the European Central Bank (ECB).

 

Shares in Europe look set to extend a two-month recovery on the upcoming stimulus scheme and risk appetite as a whole appears to be back on the cards, especially as the Greek debt crisis has been postponed for another few months.

 

Starting in March, the ECB will buy 60 billion euros worth of debt per month until September 2016. Bonds will be bought on the secondary market and in-line with the ECB’s capital key, meaning the larger economies will have more of their bonds purchased compared with the smaller economies.

 

"The combined monthly purchases of public and private sector securities will amount to 60 billion euros," said Mario Draghi, president of the ECB, in January.

 

"They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim [of rates close to but below two per cent]," he explained.

 

However, there have been some recent reports that suggest the bottom of the inflation decline might have been reached already. The oil price crash has so far stabilised at a level above previous forecasts, which is likely a major reason why deflationary pressures are weakening and we’re seeing price growth fall less than forecast.

 

Friday’s inflation updates from Germany and Spain were higher than forecast and indicates that deflationary risks in the euro area are not as bad as expected. Furthermore, price growth in Italy remained positive this month, despite forecasts for it to fall into negative territory.

 

It means that Monday’s inflation updates from the European Union will be watched avidly by market movers, as they await news on whether prices in Europe declined for the third straight month, or whether it hints that the risk of deflation is abating.

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