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More QE from the ECB?

More QE from the ECB?

One of the major highlights on this week’s economic calendar is Thursday’s European Central Bank (ECB) meeting. The July meeting can be a bit quiet as European businesses look forward to slowing down into the summer. Also, it’s going to be hard to beat last month’s meeting in terms of surprises. The big quarterly June meeting saw the ECB increased its Pandemic Emergency Purchase Programme (PEPP) by €600 billion. This was unexpected and came on top of €750 billion of bond purchases the ECB announced in March.

But this time round the ECB has to carefully consider its ongoing response to the coronavirus pandemic. Not only that, but the ECB’s emergency package comes on top of the steps taken to boost the chronically low inflation levels seen across the Euro zone in recent years. This includes monthly purchases of €20 billion in government bonds as part of a quantitative easing (QE) plan announced in 2019. So, all in all, we’re looking at a considerable package of monetary stimulus. Recent economic data releases have shown a marked improvement across the Euro zone. This has corresponded to an easing of the lockdown in many countries and has led many economists to forecast a V-shaped recovery. This helps to explain why ECB president Christine Lagarde told the Financial Times last week that now was a good time to wait and see, to review the effectiveness of measures taken so far. In other words, Ms Lagarde implied no change in policy from the ECB in the July meeting.

Despite this, over the weekend we saw a pronounced spike of social media mentions of ‘quantitative easing’. In fact, QE has, so far, easily been the most discussed topic in the lead-up to Thursday’s ECB meeting. It is the blue line in the chart below which measures the ‘hype’ or media interest of specific topics. We’ve isolated it (along with ‘dovishness’ in light green) as all other topics barely registered. ‘Quantitative easing’ easily outpaces hype around interest rates, stimulus or anything else. It has also eclipsed mentions of ‘dovishness’, a term used to describe a mood where the wish for lower interest rates prevails.  As you can see below,  this was a major topic around the last ECB meeting. The suggestion is that, as far as commentators on financial social media are concerned, there’s still a discussion to be had about QE from this central bank, and we should expect that to be a feature of the ECB statement and President Lagarde’s subsequent press conference.Ms Lagarde could also take the opportunity to press European leaders to step up with additional support measures. This would neatly dovetail into the EU Leaders’ Special Summit on Friday, which will be primarily focussed on the European Commission’s €750 billion fiscal rescue plan. While Germany has said it supports the plan, there remains stiff opposition to the proposals from the so-called ‘Frugal Four’ countries – Austria, Denmark, the Netherlands and Sweden. All eyes will be on the euro which could come under selling pressure if there’s any inkling of a push-back against a substantial assistance package to support the worst-hit member states.

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