Via Bloomberg,
Bloomberg's opinion piece earlier in the week outlined a case for a dovish ECB to support the EURO and stocks. Christine Lagarde is needing to walk a careful balance at today's meeting. She will want to 'talk the Euro down' as a strong Euro harms the eurozone's export markets.However, there are a limited number of policy tools she has. The median expectations are for €350 billion in extra asset purchases, so she could add some extra stimulus. The ECB could also speed up the pace of purchase without adding to the amount. Aside from that there is not a whole load that can be done and a move lower in rates looks unlikely. The negative rates approach by central banks across the world is not embraced by the Fed and that is holding up rates globally for now.
So, could Christine Lagarde actually talk down the Euro and eurozone growth prospects and this end up supporting the Euro and stocks? The normal playbook for central banks is that loose monetary policy and dovish central bank messaging leads to less favourable interest differentials and a weaker currency. Bloomberg are out with a piece suggesting that this time it could be different. Here is their rationale
In the last few months aggressive bond buying has been accompanied by a massive injection of fiscal stimulus at a national and EU level:
- German has spent €220billion and pledged to do more
- France has spent €57billion and pledged to do much more
- The EU itself has pledged €750billion
This should provide a supportive mix for the eurozone and with it make the shared currency and European stocks more attractive. The heart of the thinking is that a strong and co-ordinated money and fiscal stimulus approach should support the eurozone.
This is an interesting perspective and one to keep in mind ahead of the ECB meeting later today.
