All Eyes On The ECB!

Deflationary Pressures continue to plague the European economic situation:

• Financial market prices are determined by the expectations of its participants: traders and investors.
• What is built in to current prices (equity market prices and fixed income market prices) is a considerable move toward substantial Quantitative Easing (QE) by the European Central Bank (ECB) led by President Mario Draghi.
• This new round of QE is anticipated to be announced on January 22 and is expected to include bond purchases totaling 550 Billion euro's.
• All of this is intended to add further stimulus to the European economy which continues to exhibit broad deflationary pressures.

Risks:

• certainly one of the major "risks" at the moment is that the ECB will not be able to offer as broad a QE as is anticipated.
• this would certainly be a negative for financial markets that have been waiting for some time for this to happen.
• there are opponents to QE in the European community and most of that opposition comes from Germany.
• as well, the ECB's powers differ from other central banks like the US Federal Reserve, where its 3 efforts at QE were successful in getting the US economy up on its feet over the last few years.
• Also any QE will have to pass the scrutiny of the European Court of Justice.
• Further complicating issues are the technical aspects of how the ECB will purchase the various European government bonds that have different credit ratings.

The implications for the Global Economy are far reaching:

• more recently the US economy has been "carrying" the global economy.
• however, it is unlikely that this is sustainable without considerable improvement in Europe.
• QE in Europe needs to happen and it needs to be successful for the long-term health of the Global economy.
• These are big risks with long-term implications and volatility levels on Thursday could soar.
• Are you protected?