European Central Bank May Surprise With Size Of New Stimulus

[...] it could also hurt the profits of American companies doing business in Europe, because the currency shift will shrink euro earnings in dollar terms. More broadly, a weaker euro would help eurozone exporters by making their goods more competitive in major trade partners including China, the U.S., Britain and Japan. Through its stimulus actions, ECB aims to make credit cheaper for companies to support growth, which is still weak at just 0.3 percent in the third quarter. Right now, markets are expecting the ECB to either extend the bond-buying program beyond the current end date of September 2016 or increase the purchase amounts. Holger Schmieding, chief economist at Berenberg Bank in London, looks for the ECB to raise bond purchases to 75 billion a month; lengthen the minimum duration of the purchases by six months until March 2017; and add new types of bonds excluding corporate issues. Ben May at Oxford Economics says a longer purchase program duration is likely but expects no increase in monthly purchases. Markets are already expecting a cut in the deposit rate by around 0.15 percentage point, says analyst Carsten Brzeski at ING-DiBa in Frankfurt.

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