While you were sleeping: Gearing up for ECB QE

Tuesday 20th January 2015

European stocks gained amid bets the European Central Bank will announce a bond purchase program this week, while oil dropped after Iraq said it produced a record amount of crude and Iran said it would survive a slump to US$25 a barrel.

The Swiss Market Index rebounded, closing 3.2 percent higher, following a two day plunge last week after a decision by the country’s central bank to abandon its cap on the franc against the euro in anticipation of sovereign debt purchases by its euro-zone counterpart.

The Stoxx Europe 600 Index ended the session with a 0.2 percent increase from the previous close. France’s CAC 40 Index added 0.4 percent, the UK’s FTSE 100 Index gained 0.5 percent, while Germany’s DAX Index rose 0.7 percent. US financial markets were closed for a public holiday.

“The market is waiting for Thursday’s ECB decision and how big the QE program will be,” Guillermo Hernandez Sampere, who helps manage about 150 million euros (US$174 million) at MPPM EK in Eppstein, Germany, told Bloomberg News.

ECB President Mario Draghi will announce quantitative easing on January 22, according to 93 percent of respondents in a Bloomberg News survey.

The Bloomberg survey showed economists expect Draghi will probably announce a 550 billion euro bond purchase program, while a Reuters poll on Monday showed that 18 out of 20 traders expect the ECB will announce a 600 billion euro program this week.

"Quantitative easing is in the pipeline," Jean-Louis Cussac, head of the Paris based Perceval Finance, told Reuters. "There's a positive bias on the market overall ahead of the ECB meeting, but the market is very volatile and there are big question marks on the upside potential going forward."

Oil prices continued their slide. Brent crude futures fell 1.5 percent to US$49.45 a barrel and West Texas Intermediate crude dropped 1.7 percent to US$47.85.

“The average for Iraqi crude output is 4 million barrels a day, which is a historical record,” Iraq’s Oil Minister Adel Abdul Mahdi said at a news conference after meeting his Turkish counterpart, Taner Yildiz, in Baghdad, according to Bloomberg News

Meanwhile, Iran’s Oil Minister Bijan Zanganeh said the country could cope with still lower prices.

"Even if the oil price goes down to US$25 a barrel, the oil industry will not be threatened," the Fars news agency quoted him as saying.

Overall, the likely direction for oil prices remains down.

"There's still more supply than demand and that's a situation that will not change in just a few weeks," Hans van Cleef, energy economist at ABN Amro, told Reuters.

BusinessDesk.co.nz

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