European Shares Seen Up As Investors Look To ECB

Mario Draghi president of the European Central Bank, right and Vitor Constancio vice president of the European Central Bank, make notes during a news conference

Mario Draghi president of the European Central Bank, right and Vitor Constancio vice president of the European Central Bank, make notes during a news conference

Most Asian markets were little changed. Combining the Fed's concerns over inflation, with the economic damage caused by Hurricane Harvey and add into the mix the prospect of more damage from Hurricane Irma and any chances of a USA rate hike look serious diminished.

The European Central Bank has a tight timetable for deciding the future of its bond-buying programme, but investors may face an even tighter one to adjust to the outcome.

Tonight's meeting is scheduled for 9:45pm AEST, with a follow-up press conference at 10:30pm AEST. The announcement of the plans regarding the Quantitative Easing (QE) program will likely be the main highlight of this week's meeting and there has been an important shift in expectations over the past weeks. Most analysts aren't expecting an announcement Thursday, but are hoping for further clues on the central bank's thinking, including the release of new economic forecasts.

Accendo Markets said: "While many had been hoping that this meeting would provide more clarity on a firm date for the European Central Bank to begin the long awaited tapering of its quantitative easing programme, the overwhelming strength of the Euro in recent months could now delay the decision".

"Inflation is just moving sideways in Europe", said Jean Boivin, head of economic and markets research of the BlackRock Investment Institute.

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.0865.

The current expectatation is for the current bond level of bond purchases - 60 billion euros a month - to reduce to zero from January to September next year, so anything longer may be considered more dovish. Any deliberate vagueness in the ECB's message, as well as more aggressive jawboning of Euro by the President, could keep the single currency under pressure in the near-term. This tells us that the market is not entirely convinced that the U.S.' troubles are over and instead see the short term debt deal as nothing more than the White House and Congress kicking the can down the road.

Policymakers still see slack in the eurozone economy, and have pointed to slow wage growth linked to still-high unemployment and underemployment in some member countries as the biggest factor holding back inflation. "I welcome the recent announcement by the Federal Reserve and now also from the European Central Bank that they intend to gradually bring their loose monetary policy to an end".

Ironically, though, every 10% rise in the value of the euro against a basket of currencies feeds through to a drop in eurozone inflation of between 0.4-0.5 percentage points.

Health stocks also rose, led by Germany's Merck KGAA, up 2.4 percent, which said that it was considering selling its consumer health business. In China, the Shanghai Composite is down 0.2%, while the Hang Seng index in Hong Kong is also 0.2% lower. A further reduction in bond purchases could push longer term yields again higher, especially against the background of strengthening growth.

Additionally, president Draghi could clarify the bank's forward guidance on interest rates, "perhaps stating that interest rates will not rise until well into 2019", McKeown said. Although Riksbank is likely to keep key policy rates on hold, it may well ratchet up its rhetoric, given the improvement in economic growth and inflation, while also seeking to limit the appreciation of the krona.

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