ECB to provide further clarity on QE program

• BoE seen unchanged again, no statement expected;

• ECB to provide further clarity on QE program;

• US data follows but focus likely to be on tomorrow’s jobs report.

Investors continue to trade cautiously as we approach the business end to the week, with today bringing the latest monetary policy decisions from the Bank of England and the ECB and more importantly, details on the new €1 trillion quantitative easing program from the latter, which is due to begin this month.

Lighter trading volumes in the first half of the week is extremely common when there is big central bank meetings on the Thursday, followed by the US jobs report on the Friday. Many traders would rather sit on the side lines and wait for the storm to pass, while those that like the stormier conditions don’t get them and therefore end up holding off as well. Needless to say, I expect very volatile conditions over the next couple of days.

I don’t think we’ll get anything from the BoE decision as it’s extremely unlikely that any change will be announced. In many traders’ minds, the BoE decision doesn’t even fall on the radar at the moment because not only are they unlikely to do anything, there’s no press conference, there’s no statement and therefore ultimately, there’s no news. Maybe later this year people will become interested again, but not now.

As far as the ECB is concerned, people don’t really know what to expect from today and that may be feeding into that cautious tone in the markets right now. On the one hand, the QE program has been announced and therefore it’s extremely unlikely that any additional monetary stimulus will be announced.

On the other hand, this is Mario Draghi we’re talking about. Never underestimate his ability to create some pandemonium in the markets even when he’s not really said anything of substance. We are due to get details of the QE program today, but I’m not entirely sure how that can impact equity of fx markets, I’d say today is much more of a bond markets story.

That said, with national central banks sharing the risk of these purchases, I do wonder if there’ll be a great desire from some to take on much risk. Yields on Eurozone debt are already very low, many shorter term bonds are trading with negative yields, I’m really not sure what the ECB expects to achieve with this QE program. If some national central banks don’t wish to take on such risk for such minor benefits, I question whether the ECB will achieve its goal of growing its balance sheet by €1 trillion.

Any hint at this from Draghi could seriously shake things up in the markets and therefore I see far more upside risk for the euro heading into the meeting than downside. Especially when you consider a lot of the data that has pointed to improvements in the region and the latest inflation reading which despite being in negative territory, improved on last month. It’s going to be a challenge for Draghi to not talk up the euro today.

Central banks aside, there are a few data releases from the US today including jobless claims, factory orders and productivity reports. With the jobs report to come tomorrow, these may not grab too much attention but I certainly think they’re worth paying attention to.

The FTSE is expected to open 2 points lower, the CAC 15 points higher and the DAX 27 points higher.