Hesitation reigns ahead of ECB

The positivity of the week has started to fade as uncertainty over today’s ECB meeting begins to drive profit taking.

• FTSE rally comes under pressure

• ECB extension seems a done deal

• Thoughts turn to end of QE

The uncontrollable exuberance of the week has hit the buffers this morning, with the impending ECB meeting raising uncertainty for investors. If early trade today is anything to go by, yesterday could truly live up to its hump day alias, marking the top of the week. There is no doubt that the recent bullish sentiment has been driven by US markets, basking in the prospect of lower taxes and a business friendly leadership from Trump. However, things are not necessarily too encouraging closer to home, with the impact of both the UK and Italian referendums casting a shadow over European sentiment.

All heads turn to Frankfurt today, as the ECB emerges from its latest monetary policy meeting to guide market sentiment. An extension to QE seems somewhat of a foregone conclusion, with the current programme due to expire in March and no current plan for winding down the scheme in place. With market expectations already factoring in an extension, it is likely that the volatility could come about through any imposition of a tapering plan, with the bank having to find a way to gradually reduce the size of asset purchases as we approach the end of the programme.

With inflation on the rise and the ECB finding it increasingly difficult to find the right bonds to buy, the central bank cannot simply maintain its QE programme forever. Even if we do not see any mention of a taper today, the release of inflation and growth projections from the ECB should go some way to shifting market expectations of when we will see it pull back from its incredibly loose monetary policy stance.

Ahead of the open we expect the Dow Jones to open 23 points lower, at 19,517.