Outlook for euro-area uantitative easing.
Data released today by the European Commission showed business and consumer confidence rose to the highest in almost six years in February, further fuelling the debate over how quickly the European Central Bank (ECB) should wind down its two-year-old quantitative easing (QE) programme. Headline inflation rose to 1.8% year-on-year in January, the fastest in four years and just below the ECB’s 2.0% target. However, core inflation remains below 1.0%, justifying the continuation of the central bank’s asset purchases despite fierce resistance from Germany.
The euro has fallen against the Japanese yen and the dollar this month because of rising concern about euro-area political risk.
Fears of a sudden end to the 30-year bull market in bonds have eased; ten-year US yields are down over 20 basis points since mid-December.
Further upside potential for the oil price is likely to be limited due to US shale and countries exempt from the OPEC cuts raising output.
In this era of unconventional policy, the ECB could maintain QE to stabilise weaker members but raise rates to satisfy stronger ones.
