US and European equities pushed higher as investors showed confidence ahead of today’s key European Central Bank (ECB) meeting in Frankfurt, Germany. All the major indices including the FTSE, DAX, CAC, DOW and SP 500 posted gains in excess of 1.5% on the day.
The ECB is widely expected to announce an extension of its massive Quantitative Easing (QE) stimulus program and may even increase, or expand, the scope of the asset pool to include European corporate bonds and equities.
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The ECB has been the most aggressive central bank in providing monetary stimulus this year. Since March, it has been buying €80 billion of assets per month, mainly in the form of Government debt. Although the program is scheduled to expire in March 2017, analysts are expecting at least a six-month extension to be announced today.
As a note of caution, it’s important that ECB chief Mario Draghi rejects any talk about an early tapering of the monthly asset purchases. Just the rumor of a “scaling back” of stimulus before the September ECB meeting sparked a sharp sell-off in G-7 equities and credit markets.
However, with the US FOMC meeting scheduled for next week, our base case is that the ECB statement will not mention tapering and, instead, focus on the technical adjustments to the QE program. On balance we expect this scenario to have a neutral to bullish impact on G-7 equity markets.
