European Markets Betting on Massive ECB Stimulus Next Week

NEW YORK (TheStreet) -- Investors are betting that the European Central Bank will launch a massive stimulus program next week after the Swiss Central Bank decided to stop propping up the euro, indicating the central bank expects a run out of the currency. European markets, which were shocked by Switzerland's abrupt move on Thursday, were lower on Friday, as were U.S. markets. Must Read: Bank of America’s 10 Top S&P 500 Stocks to Buy for 2015 Deutsche Bank credit strategist Jim Reid thinks the Swiss National Bank's action could force the ECB's hand. "The ECB might actually look at the wider market moves (Thursday) and be scared to disappoint," Reid wrote in a note to clients. "Once you artificially impact a market, changing course can be very painful." Further complicating the issue, Greece is scheduled to hold snap elections on Jan. 25. Analysts have been split over whether the ECB would announce its stimulus plan on Thursday, three days before the Greek vote, or hold off until early March. An announcement next week would give markets only one trading day before the Greek vote, which could have implications for confidence in the eurozone. However, the Swiss National Bank clearly believes that a stimulus plan is imminent, and dropped its expensive support of the franc in anticipation of huge inflows into the currency. "I think this shifts the odds about what we're going to hear next week," BNY Mellon currency strategist Simon Derrick said. Markets also took the Swiss move as a signal that the stimulus is likely to be sizeable. Analysts have warned that anything other than a large, unconditional program of sovereign bond purchases would disappoint investors. The structure of the stimulus program might also have to change, analysts say. "I was thinking that they were going to go with a monthly stimulus," James Stanton, head of FX at the deVere Group, said. "Now the markets are thinking: how much are they going to do now? Are they going to have to do a lump sum at first and then monthly bond buying?" Before the SNB shocked the markets, eurozone bond yields had been supported by the expectation of stimulus, which is also being called quantitative easing, or QE. Ten-year yields across the region flirted with record lows this week; after the announcement they tightened further. The form that QE will take remains unclear. Opposition by several members of the governing board, in particular the German Bundesbank, means that unrestrained buying of sovereign debt seemed to be off the table. The German Constitutional Court has referred previous asset purchases by the ECB to the European Court of Justice, leaving a legal shadow hanging over the forthcoming round of QE. Before the Swiss shock, markets had been digesting comments from the chief legal advisor to the ECJ, stating the program was likely to be lawful. Must Read: 10 Stocks Billionaire David Einhorn Loves for 2015

from Latest TSC Headlines http://ift.tt/1CvQzKf