Mario Draghi’s quantitative tease shows signs of finally ending

That old quantitative tease Mario Draghi is back on stage this week, with speculation growing that the European Central Bank president may finally pull the trigger on direct purchases of sovereign debt from European Union member states. Draghi has long been fanning quantitative easing expectations with coy hints and veiled signals, but so far has always ended up opting for delayed gratification.

However, confirmation that inflation turned negative across the euro zone in December for the first time since 2009 will pile the pressure on the Italian economist to press the QE button at the ECB’s first policy meeting of the year this Thursday.

The ECB has already been buying corporate bonds, but though Draghi has in the past pledged to do “whatever it takes” to save the euro, he has held off on the direct buying of member countries’ bonds. Heightened concerns that the EU is steering a course for a Japanese-style deflationary spiral means Draghi may finally take more drastic stimulus action in a bid to boost liquidity and lower interest rates.

Indeed the question seems to have moved on from whether he will launch a wide-scale intervention to when. In a recent equity briefing, Davy interpreted recent comments from Draghi as a tip-off that the ECB will begin its program imminently, with this Thursday "a potential sign-off date for an expanded bond-buying programme". And earlier this month, in a note to clients, CitiFX made the bold pronouncement that the market was moving to "near 100 per cent certainty of ECB QE on January 22nd".

Cantor Fitzgerald Ireland noted in its investment outlook for 2015 that Germany is strongly opposition to the QE idea, but said it believes that "the ECB has little choice but to roll out such a programme". It added: "In light of the continued spectre of disinflation . . . we believe the market could witness government debt purchases by late Q1/15."

But even if Draghi puts the programme into play, monetary policy alone may not be Europe’s panacea, Cantor Fitzgerald warns. “Instead, [Draghi] has called on member state governments to loosen fiscal policy and begin spending again following years of austerity.”