European QE is on the way, hints Draghi

ECB boss Mario Draghi has lifted investors' hope of money printing - expect European QE some time next year.

It was another busy week in the euro saga. An informal vote on independence for Catalonia showed that more than 80% of the population were in favour.

That was a reminder of the potential for political instability triggered by "insurrectional electorates", as the FT's Wolfgang Munchau puts it. If Europe slips into a Japan-style slump, austerity-weary voters could decide to leave the single currency.

On the plus side, investors were happy to note that the European Central Bank (ECB) was stepping up efforts to prevent a slump. Last week's press conference by the ECB president, Mario Draghi, wasn't quite a promise to start quantitative easing (QE) by buying government bonds, but it was pretty close.

Draghi said he had asked staff to start preparing further unconventional measures and confirmed that he wants to swell the ECB's balance sheet by €1trn.

He noted that if current policies (buying asset-backed securities and providing cheap loans to banks) aren't enough to reach the €1trn target, or the outlook deteriorates significantly, new measures will follow.

As several analysts have pointed out, the data continue to deteriorate. Thanks to lacklustre demand from banks and the small size of the asset-backed security (ABS) market, it is unlikely that current measures will get the ECB to its target.

So that really only leaves large-scale purchases from the huge sovereign bond market to fill the gap. QE, the last few years show, weakens currencies and boosts equities, which is what cheered the markets. Expect European QE by the end of the first quarter of 2015, says Deutsche Bank.

Recommended

Green finance is set to be the most powerful financial repression tool yet
Bonds

Green finance is set to be the most powerful financial repression tool yet

The government has launched its “green savings bond” that offers investors just 0.65%. But that pitiful return is in many ways the point of “green” fi…
22 Oct 2021
Equities are not a good inflation hedge
Economy

Equities are not a good inflation hedge

Institutional investors are definitely now worried about inflation. But they're not yet worried enough to flee to cash, says John Stepek
22 Oct 2021
Why fed-up workers are quitting their jobs
Economy

Why fed-up workers are quitting their jobs

Workers are leaving their jobs at an astonishing rate, especially in the US, leading to a shortage of workers. What will that mean for our economies? …
22 Oct 2021
China’s economy faces a triple shock
Chinese economy

China’s economy faces a triple shock

Power cuts, the pandemic and the property slowdown are slowing China's economy down.
22 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021