QE and oil continues to dominate

We discussed in our week ahead how speculation would continue ahead of next weeks ECB’s rate setting meeting.  On Monday, a source close the European Central Bank told CNBC it could be ready to announce a quantitative easing program based on the contributions made from national banks to the central bank. This level of detail would lead one to believe that there is some basis behind these rumours.


The financial press continues to report that Germany remains opposed to outright QE, and does have some support from several other European countries in this regard. On Tuesday the European Court of Justice in Luxembourg issues an opinion of the legality of the earlier bond purchase program known as Outright Monetary Transactions. OMT was referred to the European Court of Justice, after Germany’s constitutional court decided OMT might be violating European rules. Although this opinion is a non-binding one, it goes without saying a favorable opinion would probably provide the markets with more ammunition that the ECB were on the point of announcing QE. A negative opinion would not mean QE would necessarily be ruled out but would complicate matters, particularly where Germany is concerned.


One other issue that still has to be resolved one would think before the ECB can move is the ongoing situation with Greece. The ECB buying Greek debt at this moment in time would give any new Greek government a strong bargaining chip over its debt negotiations. The ECB would not want to be adding to its portfolio of Greek bonds only for it to then default on them, and the incoming government would be well aware of that. It may be that until the election is over and the outcome known the ECB will continue to drip feed stories into the market.


Equities started the day encouraged by the CNBC report but once again a faltered later in the day as the oil price fell again. Alcoa announced its fourth quarter results beating analyst expectations, hopefully an encouraging start to the earnings season ahead. 

Posted on January 12, 2015 .