Europe turns to the money-printing presses again

It's looking like the European Central Bank is gearing up to increase the pace of its European money-printing programme.

It now looks very likely that the European Central Bank (ECB) will increase the pace of its QE (money-printing) programme, at its next meeting on 3 December. The 19-nation bloc grew by just 0.3% in the third quarter, a slight slowdown on the second quarter, which in turn was weaker than the first. Inflation, which the ECB is obliged to keep under but close to 2%, is practically non-existent. Last month's annual rate was just 0.1%.

The ECB wants to avoid deflation, which would make the highly-indebted eurozone's borrowings higher in real terms. So cue more QE. Right now, the ECB prints €60bn a month to buy government bonds. The programmeis set to run until at least September2016. Bank of America Merrill Lynch (BAML) is pencilling in a rise in monthly purchases to €70bn, with the programme's minimum length extended by a year. The ECB will also cut its deposit rate by 0.1% to -0.3%, to discourage banks from parking cash there.

Upping the ante is justified, says BAML. The trade-weighted euro (measured against a basket of trading partners' currencies) has actually climbed by 5% since the spring, creating a headwind for exports, which account for around 25% of GDP. Lending to non-financial companies has slowed as banks remain cautious. Inflation shows no sign of ticking up. All this means more money is set to lift European stocks, where valuations are more enticing than the US and the scope for profit growth is larger, as margins are not as stretched as on Wall Street.

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