With expectations that the ECB will be announcing its position on QE today, it’s off to the races for all financial market participants. The buildup to the announcement has been event filled to say the least, with a number of central banks surprising the market, currency moves wiping FOREX brokers off the face of the earth, European bonds turning negative across the curve and volatility dominating equity markets.
However, the ECB is known for being excessively conservative in their decision making and has set a track record of disappointing on its delivery of QE and macroeconomic support. Delivering many promises, but little action.
The market action over the past couple of months suggests that market expectations are set extremely high, banking on a possible €600 billion plus program, despite strong opposition from Germany as well as challenges faced with the practical execution thereof.
From an investment perspective we recommend approaching the announcement conservatively positioned in order to avoid catastrophe in the event of disappointment. We would rather add risk to the portfolio after the fact, on concrete information as opposed to conjecture. One lesson learned from past QE is that returns are made over the duration of the program and not only over the first day, week or month.
We’ll rate the following factors to determine the degree of risk we are willing to take:
