Markets today will be looking forward to the European Central Bank meeting and president Mario Draghi’s speech. While we expect no immediate action on the monetary policy, we widely predict that the central bank will lay the necessary groundwork for action in October on tapering QE asset purchases. The ECB is reaching a key moment after 8 years of super low interest rates and three years of aggressive bond buying. There are two key issues. First, should it raise interest rates while the Euro is rising against both the Dollar and the GBP as any significant appreciation of the currency is effectively a tightening of monetary policy. Second, how should it slow down or taper its giant bond-buying program without causing too large and fast an increase in bond yields which would derail the eurozone's economic recovery.
span style="font-size: 10pt; font-family: Arial,sans-serif; color: black;">
span style="font-size: 10pt; font-family: Arial,sans-serif; color: black;">The good news is that the region's economy is showing good signs of better economic growth for the first time in nine years as the almost decade long sluggish period fades into history and EU political tensions ease. Investors will be looking for any signals on the direction the ECB’s thinking is heading on these issues.