The Federal Reserve’s two-day meeting concludes Wednesday. To the extent the FOMC meeting is ever routine, this should be it. Its forward guidance evolved at the end of last year. The “considerable time” between the end of the asset purchase program, which it never called quantitative easing, and the first hike, is now called “patience”.
After several months of dismissing disinflationary trends, the European Central Bank has affirmed that it will do whatever it takes to reach its inflation target.
After prices fell in the Eurozone by 0.1% on a month-to-month and 0.2% on a year-to-year basis, the European Central Bank announced a 1.1 trillion euro asset-purchasing program last week aimed at raising inflation expectations. One day after the announcement, ECB executive board member Benoit Coeure said the quantitative easing program would extend if inflation fails to reach 2%.
By allowing the European Central Bank (ECB) to start buying debt issued by its member states, the Eurozone is copying a strategy now associated with the earlier return to growth in the US and UK.
Quantitative easing (QE) may not have worked in the way its architects hoped; reviving private investment by reducing borrowing costs and raising asset values. But QE has set up conditions for such revival by helping governments and households finance their debt at low cost, so that spending picks up and gives an incentive to invest.
Today is all about the ECB. The press claims to have access to people or documents that have the ECB buying 50 bln euros of bonds a month. The duration of the program is not clear. There was a conflict in the media. Some claimed that the program would last a year. Others claimed it would last until the end of 2016.
Investor enthusiasm cheered European markets after rumors surfaced that the European Central Bank will inject as much as 1.1 trillion euros in the European Union.
The ECB, which will announce its plans today, will spend the money purchasing assets throughout the European Union in an effort to boost the Eurozone. While the ECB has not made an official comment on the rumor, many news outlets have already reported the asset purchases agreed upon by ECB President Mario Draghi and the ECB Executive Board.
1. What is the ECB going to do? The ECB is widely expected to announce that it will accelerate and broaden its efforts to expand its balance sheet.
The European Central Bank meets tomorrow, and that is the main event of the week. The price action today is dominated by other central banks. The market is still struggling to find a new balance after the Swiss National Bank’s surprising move last week.
Currency wars have been predicted for years. Outright monetary battles were last seen during the Great Depression of the 1930s, when governments competed to devalue their currencies to gain market advantage. But since the return to floating exchange rates in the 1970s, the risk of renewed competitive manipulation has hovered over the monetary system like a dark cloud.
European stocks advanced for three days in a row as of Monday, as more investors expect the European Central Bank to announce a quantitative easing program that will expand the euro base and stop Eurozone deflation.
The Stoxx Europe 50 index rose 0.6% on Monday, while the Dax saw higher gains, rising over 1% at its highest point, although the index retreated slightly in afternoon trading.
This will be an eventful week. There are three major central bank meetings: BOJ, BOC and ECB. The ECB is widely expected to announce a wider bond-buying program that will include sovereign bonds. January 25 Greece holds national elections in which Syriza is maintaining a small lead.
