Will the ECB put petrol in the QE car today?

Mario Draghi has proven a shrewd operator since he took the helm as head of the ECB over three years ago so it should be easy to read his lips on where the Central Bank’s thinking is, this is especially important as QE is on the lips (and minds) of many, here are the main areas of focus and impact:

Mario Draghi has major concerns about eurozone economies

Mario Draghi has major concerns about eurozone economies

Introductory Statement
The opening press statement will be much more important than past press conferences. In a recent speech, Mr. Draghi signalled urgency in boosting inflation, saying it needed to happen “without delay.” If this is again referred to and included in the introductory statement, it would go a long way to confirm that the bank has significantly progressed its thinking (and aligned with a major jobs message from senior EU political figures) on the matter of QE.

Government Bonds
Vague or specific reference – ECB watchers will keep a major focus on whether an explicit reference to possible government bond purchases makes it into the ECB statement, and how much Mr. Draghi dwells on this option during his Q&A. This would also send a powerful signal that the ECB is getting closer to this step.

Unanimity of simple majority
The ECB could progress with QE with a simple majority of the ECB’s 24-member governing council. However, this would be controversial as there is scepticism in Germany. So, the big test will be a simple majority at the ECB Governing council or a more substantial (i.e. Germany and other sceptical members) one.

Inflation or deflation
The inflation outlook for 2015 will likely be cut from 1.1% given that consumer prices were only 0.3% above year-ago levels in November. This is well below the Euro target of 2%. The major question for the ECB is why it has failed to act given the prolonged recession in many countries sharing the Euro.

Fracking and fracturing – the oil reality!
US fracking and OPEC fracturing – the price of oil has collapsed. In Iran, Libya, Venezuela and Russia, there are real economic concerns of economic demise in those oil and gas dependant economies (the rouble has fallen at a rate similar to the period of Russian debt default in the late 1990’s). And coupled with the current deflation in the Euro area, the falling price of oil has a major impact…pushing deflation even lower. If and how Mr. Draghi dwells on the matter will be another sign on his, and the Council’s thinking on QE.

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