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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Markets soar as ECB extends QE programme until December 2017 – as it happened

Watch Mario Draghi’s press conference here

A late newsflash: German media are reporting that the head of the Bundesbank, Jens Weidmann, opposed today’s moves:

This explains why Draghi couldn’t say that the decisions to extend QE was unanimous.

(and that really is all for tonight!)

Lena Komileva of G+ Economics has fired over a useful explanation of the ECB’s policy measures, and the way it has steepened the yield curve on eurozone debt:

This is important. The ECB is prioritising yield curve steepeners: the policy decision to embed a technical “taper” in its 9-month QE programme extension, by scaling down its monthly purchases from €80bn to €60bn, to ensure policy continuity, sends a clear signal that there is a limit to how far the ECB’s QE can run and how high the ECB’s balance sheet can grow beyond 2017, before it runs into hard technical, and political, constraints.

The ECB’s announcement of changes to the parameters of the asset purchase programme from January by increasing the maturity range to 1-30yrs from 2-30yrs and buying assets yielding below the deposit rate (‑0.4%) for the first time – also led to a sharp declines in the yields at the short end of the curve, reinforcing a curve steepener bias. The prospect of tapered monthly purchases and lower-for-longer negative yields means that the ECB’s reflation channels have shifted in favour of a weaker euro and higher equity markets, with negative discount rates and a cheaper exchange rate clearly benefiting stock valuations.

Updated

PS: It’s also worth checking out the German government bond market tonight.

The yield on short-term bunds has fallen deeper into negative territory, meaning prices have jumped because the ECB has now given itself the ability to buy this debt.

But the yield on longer-dated bunds has risen, showing that investors are dumping the debt -- showing disappointment that the QE rate has been cut to €60bn per month.

And it was a volatile day in the bond markets, as traders tried to keep up with Draghi

ECB extends QE: A full summary

European Central Bank President Draghi and Vice President Constancio leaving today’s news conference at the ECB headquarters in Frankfurt.
European Central Bank President Draghi and Vice President Constancio leaving today’s news conference at the ECB headquarters in Frankfurt. Photograph: Ralph Orlowski/Reuters

Here’s what you need to know about the European Central Bank’s decision.

1) The European Central Bank has pledged to pump more money into the eurozone economy until the end of next year, and longer if needed.

At today’s meeting, its governing council decided to extend its asset purchase scheme (which buys assets from banks with newly created money) by an extra nine months. From April 2017 it will buy €60bn of assets each month, down from €80bn.

President Mario Draghi insisted that Europe’s economy needed more stimulus, help drive inflation and growth back up.

There are indications of a somewhat stronger global recovery. However, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors.

2) Draghi said the decision had “very, very broad” support - implying that he couldn’t get unanimous backing for the plan.

This analysis shows that the changes mean the ECB now shouldn’t run out of eligible assets until 2018:

3) Draghi was adamant that the ECB is not “tapering” its QE programme, leaving some City experts a little confused.

The ECB president argues that today’s changes to not amount to tapering, as there’s no plan to stop asset purchases.

“The natural way to look at a word like that is to have a policy whereby purchasers would gradually go to zero, and that’s not been discussed or, as a matter of fact, it’s not even been on the table.”

Draghi gave increasingly terse answers to journalists who tried to push him on this issue -- clearly the president doesn’t want to provoke a US-style ‘taper tantrum’ by encouraging bond investors to sell up.

He insisted that the ECB could boost the pace of asset purchases if circumstances demanded, or run the programme into 2018.

But Marc Ostwald of ADM Investor Services wasn’t convinced:

The problem is that however much Draghi tried, and by the end of the press conference he was not only very irritated by the endless taper questions and stumbling in terms of explanation, he could not refute the point that cutting to €60bn/month could be a staging post to further cuts, because it is simply not refutable.

It may not be their intended path, but it is not out of the realm of possibilities.

4) The ECB also made some important changes to its QE programme, including removing the limit that prevented it buying extremely expensive bonds.

The ECB will now consider buying bonds with a yield below its deposit rate (the interest rates charged on bank deposits at the ECB). That deposit rate is a historically low MINUS 0.4% (to encourage banks to get out and lend).

So the ECB can now buy more bonds for more than their face value -- meaning it would incur losses when the bonds mature.

Why would it do that? Because it widens the pool of potential assets which can be mopped up by the ECB.

Kathleen Brooks of City Index says:

The ECB had to change its standards for bond purchases to ensure that its QE programme did not disrupt the debt markets. It will now include bond purchases below its own deposit rate, which is already -0.4%. Thus, the ECB will be paying to hold some bonds that will be included in its QE programme.

The craziness doesn’t stop there, some of those bonds have a negative yield because of the ECB’s QE programme in the first place. This meeting has been like a financial version of Alice in Wonderland.

5) Shares up, euro down.

The euro has now slid all the way back to $1.061 against the US dollar, down 1.3 cents today, having been pressing its nose against $1.08 before the ECB announcement.

Neil Wilson of ETX Capital says:

“The euro plunged after ECB chief Mario Draghi presented an unexpectedly dovish outlook on monetary policy, hinting that QE could go on for years if required.

In fact he even said the QE programme is ‘in effect open-ended’ and the overall dovish tone of the announcement means EURUSD is down 1% having risen earlier in the day. It’s fair to say this is at the dovish end of what markets had expected.

And that’s why European stock markets have jumped, welcoming the prospect that the ECB will remain in ‘easing mode’ until the end of next year.

European stock markets this afternoon
European stock markets this afternoon Photograph: Thomson Reuters

6) Draghi warned against complacency over the impact which the Brexit vote, and Donald Trump’s election win, will have on the eurozone and the financial markets.

“It is difficult to judge the effect of these big events,not only the election of Mr Trump, but Brexit, the defeat of the Italian referendum.

Markets proved much more resilient than people expected them to be. This probably has many reasons, many causes. One of these is certainly the good work that regulators have done ... All these events ... have effects that by their very nature are going to develop their full dimensions in the medium to long term ... these consequences are very difficult to assess now.”

Quite. That’s a good moment to end this blog. Thanks for reading and commenting. GW.

Updated

Frank Engels, head of fixed income at Union Investment, explains why shares have jumped:

“Today’s ECB decision was a very smart move of Mario Draghi.

Lowering the monthly purchasing volume, abandoning the yield floor for security purchases and extending the program’s maturity should cause the yield curve to become steeper, with the short end firmly anchored. This is a strong support signal for equities, particularly for banks and insurance companies. It is bearish, but not overly bearish for rates, though. We consider today’s decision to be the first step out of the ECB’s QE.”

Markets soar on back of ECB QE

Stock exchange in Frankfurt.

Stock markets on both sides of the Atlantic have jumped, as the promise of more cheap money raises spirits on the trading floors.

Investors are welcoming the European Central Bank’s decision to extend its QE programme by an extra nine months.

The slump in the euro, now down 1% at $1.0634, has also driven up the value of European exporters.

Germany’s DAX hit a one-year high, over 11,000 points for the first time since December 2015. The French CAC also hit a one-year high.

And on Wall Street, the Dow Jones index, the S&P 500 and the Nasdaq index of tech stocks have all hit record highs in early trading.

Updated

Daghi: QE is open-ended (ish)

Q: Why didn’t you decide on an open-ended QE extension, rather than just committing to buying more bonds for another nine months beyond March?

Our programme says it goes until December 2017 or beyond, if necessary, and until we see a sustained rise in inflation, Mario Draghi replies.

It is, to an extent, open-ended -- it’s state-dependent.

And finally, Draghi reveals that the ECB has made some changes to its securities lending programme - and will now accept cash as collateral (this wasn’t expected, so we’ll find some expert reaction).

And that’s the end of the press conference. Summary and reaction to follow.....

Draghi: Higher oil prices will feed into inflation

Q: How important is the recent rise in the oil price?

It’s an important change, says Draghi, driven by better demand conditions, better supply conditions, and the reestablishment of some international agreements.

There is no doubt that these higher prices will feed into higher inflation, but we must see if it’s just a one-off effect, whether it has any secondary effects, and if it effects inflation excluding energy costs.

Q: What’s the advantage to doing an extra nine months of QE at €60bn per month, not €80bn for six months?

Draghi says the ECB wants to ensure a sustained pressure on market prices, without distorting them of course (perish the thought, Mario!)

And we want to ensure that the reduction in size does not mean tapering (everyone got that? Good).

Q: Your colleague Mr Mersch hinted recently that tapering might be discussed today, but you say it wasn’t discussed. So how should we interpret these conflicting signals?

I tell you what happened today, it was not discussed, insists Draghi curtly.

Q: So did no governing council member argue for tapering today?

Exactly, says Draghi, curtlier.

Draghi: We've not stifled eurozone reform

Q: How would you respond to critics who say you have “stifled” the push towards economic reforms in Europe, by easing monetary policy so much

Draghi gives a little sigh, and then replies.

We’ve been discussing this for a long time. Our view is different - we think that easing monetary conditions helps governments to implement reforms, he says.

Governments can reform their education, judicial, political and legal systems regardless of the cost of borrowing, Draghi insists.

Q: How would you respond to claims that you are biased towards Southern Europe countries, such as Italy, by extending your QE scheme?

Draghi smiles, and says “no, of course” the ECB is not biased.

Our policies are not very different from other top central banks, he points out.

Q: Do you see a risk of a new eurozone crisis next year?

Draghi does not. Different countries do have different problems, which should be dealt with stability, but these problems can be “contained”.

Q: Won’t the ECB take a loss if it buys government bonds below your deposit rate?

Our aim is to ensure price stability, not to make a profit, declares Draghi nobly

(explainer: a bond with a yield below zero is trading above its face value, so an investor would not get back all their money when it matures)

Updated

Q: What can central banks do in this current time of uncertainty?

We must keep a steady hand, Draghi declares, giving governments the opportunity to strengthen economic growth and create jobs.

Draghi: We've not seen the impact of Brexit and Trump yet

Draghi is then asked about the US election.

The financial markets have proved “more resilient” to the shock caused by the Brexit vote, the US election, and the Italian constitutional referendum, says Mario Draghi.

But he then warns that the full effects have not played out:

All these events, especially Brexit and the new administration in the United States, have effects which by their very nature will develop their full dimensions in the medium-to long term.

So we’ll certainly see consequently in the medium-to-long term.

Draghi says he doesn’t expect any legal problems following today’s changes to the ECB’s QE scheme.

The ‘self-imposed boundaries’ that we have changed today are not the ones which were needed to ensure the programme fell within our mandate, he argued.

Q: You forecast an inflation rate of 1.7% in 2019 - is that close enough to your target (of close to, but below, 2%).

Not really, Draghi replies

Q: Why isn’t this tapering, Mr Draghi?

Tapering implies cutting the purchase programme down to zero, and that hasn’t been discussed, the ECB president replies.

Updated

Q: You’ve said you’ll boost the pace of asset purchasing if conditions worsen, so would you cut the pace of asset purchases if conditions are better than expected?

We haven’t discussed such a ‘high class problem’ says Draghi dismissively (dispatching the question into the stand for a six).

Q: When might the ECB start tapering?

Draghi says today’s decisions were taken to ensure the ECB has a “sustained presence in the market”.

Q: How worried are you about Italy’s banks?

The problems in Italy are well known, and will be dealt with by the Italian government.

Draghi: We are not tapering

The risk of deflation has more or less disappeared, but uncertainty prevails, says Draghi.

And he insists that cutting QE to €60bn per month in April 2017, from €80bn, is not a tapering.

Tapering has not been discussed today, he insists.

Updated

Q: What is the economic justification in deciding to start buying government bonds which are yielding less than -0.4%?

Draghi says that the ECB has decided to buy bonds yielding less than its deposit rate (currently -0.4%) ‘to the extent necessary’.

It’s an option, not a necessity.

[explainer: the deposit rate is what banks get (or are charged) for leaving cash at the ECB’s vaults]

Draghi: Very very broad consensus behind today's moves

Onto questions...

Q: Were today’s decisions unanimous:?

There was a “very very broad consensus” behind today’s decisions, Draghi replies.

I think that’s a no...and so does Michael Hewson of CMC Markets:

It wouldn’t be a Mario Draghi press conference without a lecture to Europe’s politicians to pull their socks up.

The ECB president calls for the “swift and effective implementations of structural reforms” to underpin the recovery.

And he wants governments to “intensify” their efforts to create more growth-friendly fiscal policies, while still remaining compliant with Brussels’ stability and growth pact.

Important point: The ECB still sees inflation someway below 2% in 2019, at just 1.7%.

That suggests monetary policy will remain accommodative for some time.....

Updated

New ECB economic forecasts

The ECB has also updated its economic forecasts, and expects marginally faster growth and higher inflation in 2017:

Investors are racing to buy safe-haven German debt, following the news that the ECB has removed the deposit limit floor on its QE programme:

And the euro is just as volatile as we warned:

Draghi says that the ‘calibrations’ announced today reflect the “moderate but firming recovery of the euro area economy” and the “subdued underlying inflationary pressures”.

The ECB still expects the eurozone economy to recover at a “moderate but firming” pace.

And he warns that the risks to the euro economy remain somewhat to the downside, even though the global economy appears to be strengthening.

HELLO! Mario Draghi says the ECB is changing the parameters of its QE scheme so that it can buy government bonds which are yielding less than its ‘deposit rate’ (currently -0.4%).

That means it could start buying ultrasafe government bonds (such as German short-term debt) which are too highly priced to fall within QE.

Mario Draghi's press conference begins

Mario Draghi is holding a press conference right now, to explain today’s decisions.

He’s reading out the statement released earlier (which I posted here)

It’s being streamed live here (I’ll try to add it to the top of this blog too).

ECB press conference

Financial blogger Jeroen Blokland shows how the European Central Bank’s balance sheet will swell further next year, thanks to today’s decisions:

And here’s yet more reaction:

The ECB’s task of nursing Europe’s economy back to health is “far from done”, says Jennifer McKeown of Capital Economics.

She believes the ECB may have to boost QE in 2017:

Presumably, the Bank has been encouraged by signs that the economy is performing well in the face of political uncertainty at home and abroad. However, it clearly remains in cautious mode.....

In all, we see a significant chance that the ECB will have to increase the pace of its asset purchases again next year. And even if it does not, policy will be far more supportive than in the US, leading the euro to depreciate further.

Today’s announcement is both hawkish and dovish, says Kathleen Brooks of City Index.

There is no free lunch at the ECB - they give with one hand, and taper with another!

Was the statement dovish or less dovish than expected? The answer is both… The extension to QE is much longer than we expected, but the tapering announcement is almost hawkish, a mere three days after the Italian’s voted No in its referendum.

Government bond yields are rising, with the German 10-year bund up to 0.44%, from 0.34% last night.

That means investors are selling eurozone government debt following today’s ECB decision, even though the central bank has promised to keep buying bonds for another nine months.

William De Vijlder of BNP Paribas says investors are reacting to the cut in QE:

The WSJ’s Chris Whittall agrees:

Fred Ducrozet of Swiss bank Pictet says that not really tapering, but it’s still not what the markets hoped for.

Finance Twitter is all agog at today’s ECB announcement.

Duncan Weldon of Resolution Group gets a mince pie for summing up the QE changes in five words:

Danielle Haralambous of the Economist Intelligence Unit reckons the ECB won’t see today’s move as a formal ‘tapering’

Mike van Dulken of Accendo Markets wants to see the details of the QE tweaks mentioned in today’s announcement.

Carsten Brzeski of ING points out that the ECB is actually promising €540bn of new QE, not the €480bn which some investors expected (€60bn x 9 months vs €80bn x 6 months)

Updated

Euro soars, then dives, on QE news

The euro jumped sharply as the ECB announcement hit the wires, but has now dropped back below €1.08.

Traders may be noting that the ECB is pledging to run QE beyond December 2017 if needed, or pick up the pace of bond buying again if conditions deteriorate.

Basically, it looks like a ‘dovish tapering’ to me.

The euro today
The euro today Photograph: Thomson Reuters

The headquarters of the European Central Bank (ECB)

Here’s the full statement from the ECB, announcing that QE will run for an extra 9 months (I’ve bolded up the key points):

Monetary Policy Decisions 8 December 2016

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017.

From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.

To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP, which will be communicated at today’s press conference and in a separate press release.

ECB EXTENDS AND TAPERS QE

Breaking: The European Central Bank has extended its bond-buying programme until December 2017, meaning an extra nine months of quantitative easing.

But it has also started to ‘taper’ the scheme -- the ECB will only conduct €60bn of QE from April, down from €80bn previously.

It has also left interest rates unchanged, at today’s meeting.

More to follow!

Interesting..., bond yields are inching higher as traders brace for the ECB decision, coming any moment.

The interest rate on German seven-year bonds has turned positive, for the first time since January [yields rise as bond prices fall].

That suggests they expect Mario Draghi to take a relatively hawkish tone today....

Donald Trump’s election win has changed the landscape for the ECB in two ways, says Unicredit’s Erik Nielsen on Bloomberg TV.

It has pushed up the yields on government bonds (which tightens monetary conditions), but it has also weakened the euro (which loosens conditions).

So the net effect is a small tightening, Nielsen explains.

Economist Meg Greene reckons the markets would react negatively if the ECB started trimming its stimulus programme today:

European stock markets are clinging onto their gains, as investors anticipate the ECB will announce a stimulus extension shortly.

That could mean we see big losses if Mario Draghi disappoints.

Also, the details of any announcement could also send shares and currencies into a spin:

Joshua Mahoney of IG explains:

An extension to QE seems somewhat of a foregone conclusion, with the current programme due to expire in March and no current plan for winding down the scheme in place.

With market expectations already factoring in an extension, it is likely that the volatility could come about through any imposition of a tapering plan, with the bank having to find a way to gradually reduce the size of asset purchases as we approach the end of the programme.

Right now, Germany’s DAX and the French CAC are up around 0.4%, with Britain’s FTSE 100 up 0.2%.

Updated

All eyes on the ECB

Tension is rising in the markets, with just 45 minutes to wait until the European Central Banks announces its monetary policy decisions from today’s meeting.

JP Morgan Asset Management global market strategist Alex Dryden reckons the ECB will extends its stimulus programme, but trim the amount of bonds it buys with new money:

“We expect the ECB will taper and lower their asset purchases to EUR 60 billion per month and extend the program by 6 to 9 months. However, the pressure on them to taper has declined in recent months, thereby increasing the chance that the keep the rate of asset purchasing unchanged and just extend the program by a few months.

Rewind to September 2016 and 23% of German bunds were eligible for purchase. That number has now risen to 53% after the November sell-off in bonds.

Kit Juckes of Societe Generale reckons Draghi must tread cautiously to avoid spooking investors:

ECB President Mario Draghi’s challenge at today’s Council meeting is to broker a deal whereby he doesn’t disappoint market expectations of an extension of the current (€80bn per month) asset purchase programme, while satisfying the demands of the more hawkish elements who want the pace of asset purchases to slow given the prospect of rising (but still low) core inflation and steady growth.

It’s a fine balancing-act which may be achieved by extending the programme without specifying the pace of buying, or maybe could see an extension with a shorter period of commitment to €80bn/month.

Robin Bew of the Economist Intelligence Unit reckons Draghi will both extend and expand QE:

General strike underway in Greece

Over in Athens thousands have taken to the streets as private and public sector employees stage nationwide protests to mark today’s general strike, the tenth this year.

Our correspondent Helena Smith reports from the Greek capital

The year may be winding down and events elsewhere in Europe may have hogged the headlines but in Greece anger, desperation and despair have far from abated. Faced with the prospect of further pay and pension cuts, thousands have joined protests called by unionists.

Demonstrators carrying banners decrying labour reforms and “new and old anti-worker measures” have been marching through Athens on a day when the country has been brought to a standstill by industrial action that has closed everything from archaeological sites to schools and private enterprises.

“More measures are coming and it is ordinary people, workers, who will pay the price,” Odysseus Trivalas, the acting head of the public sector union, ADEDY, told me as he prepared to participate in one of the rallies.

“Lenders are asking for the impossible, for primary surpluses that will be absurdly high for the next ten years. That means there will be more cuts in pensions and wages, more poverty, more despair,”

The labour reforms, which include calls to abolish collective work agreements and allow for mass lay-offs, are now at the heart of a controversial bailout review between debt-stricken Greece and its euro zone creditors. In a statement, the private sector union, GSEE, described the measures as “irrational,” saying “the burden we carry is already unbearable.”

Greece needs to conclude the review to continue accessing emergency funding from the €86bn bailout – the third to be given Athens since 2010. Inclusion of the country in the ECB’s QE programme by March 2017 - a move seen as vital if Greece is to return to capital markets anytime soon - is also dependent on it.

Hit by its worst financial crisis in modern times, Greece is experiencing record levels of poverty and unemployment, at 23.1% the highest in the EU.

Today’s industrial action has been timed to coincide with debate in parliament over next year’s budget, which foresees further tax increases and spending cuts. The leftist-led government is expected to pass the budget in a vote this weekend.

Updated

A FOBT (Fixed Odds Betting Terminal) in a Paddy Power Betting Shop in East London .

Shares in two of Britain’s largest bookmakers are falling faster than an unlucky punter’s bank balance, after MPs announced a clampdown on fixed-odds betting.

Fixed-odds terminals are notorious for being highly addictive, with some gamblers becoming hooked on roulette and simulated horse and greyhound races. And a cross-party MPs has concluded that changes are needed.

They propose that the maximum stake should be cut from £100 to £2, and the speed of the machines should be lowered too.

The final report is due in January; today’s interim findings have sent shares in Ladbrokes and William Hill down by 7.5%.

Newsflash from Brussels: The European Commission has just launched legal action against several countries, including Germany and the UK, over the Volkswagen diesel emissions scandal.

Germany, Britain, Spain and Luxembourg are in the dock for not hitting VW with the same sort of tough sanctions which the company faces in America.

The EC also wants Germany and the UK to explain why they didn’t share the findings of their own investigations into VW with the rest of Europe

European Industry Commissioner Elzbieta Bienkowska says:

“National authorities across the EU must ensure that car manufacturers actually comply with the law.”

The countries now have two months to respond; in theory, the EC could take them to the European Court.

Capita shares hit decade low

Shares in UK outsourcing group Capita have hit their lowest since the summer of 2006, after it hit investors with its second profits warning in three months.

Capita warned that it faced “near-term headwinds”, as it announced plans to cut costs and sell of some businesses.

It also warned that underlying profits will be ‘at least’ £515m, compared to a previous target of between £535m and £555m. This sent traders scarpering to file Sell orders, sending Capita shares down 7.9% to 519, a decade low.

Capita’s share price over the last decade
Capita’s share price over the last decade Photograph: Thomson Reuters

Among other duties, Capita is responsible for providing including electronic tags for the Ministry of Justice, collecting the London congestion charge and the BBC licence fee, and running customer services for several major UK firms.

Ducrozet: Draghi should avoid 'taper tantrum'

Top ECB watcher Fred Ducrozet predicts the ECB will extend QE by six months at its current rate of €80bn per month, but retain the option to possibly taper next summer.

He says the ECB must tread carefully today, to avoid spooking the markets:

Amid growing evidence of a more robust recovery and improved policy transmission, there is a case for a reduction in the pace of asset purchases at some point in 2017, if anything because stocks matter more than flows in the ECB’s view.

However, signalling an eventual tapering of asset purchases now would almost certainly trigger an unwarranted tightening of monetary conditions, or ‘taper tantrum’, that might jeopardize the recovery and force the ECB to do more.

Euro hits three-week high

The euro just hit a three week high against the US dollar, at $1.0799.

That may show that traders aren’t expecting Mario Draghi to be too dovish today.

Updated

Kathleen Brooks of City Index reckons that the ECB may only extends its stimulus programme by an extra three months beyond next March.

She says there are two good reasons for Mario Draghi to sound conservative today; a) the eurozone economic data has been quite good recently, and b) the ECB has been running out of eligible bonds to buy.

So:

  • We think that Draghi and co. will extend their QE bond purchases out until June 2017
  • This could disappoint some in the market, who may be looking for an extension until September 2017.
  • Draghi may confirm that there is talk about how and when to taper, but no decisions have been made at this stage.

Traders are bracing for Mario Draghi to create a lot of volatility in the markets today.

Most economists expect the ECB to announce an extension to its QE scheme today, but there’s no consensus on these details:

  • Length: A six month extension seems likely, but the ECB could go longer, or shorter
  • Volume: Will the ECN stick with its current policy of buying €80bn of government and corporate bonds each month?
  • Tapering: The ECB could decide to trim the amount of bonds it buys each month

The ECB could even delay a decision on QE until its next meeting in January - something that might spook the markets:

Updated

The Sports Direct headquarters in Shirebrook, Derbyshire.

Sports Direct shares have fallen by 5% at the start of trading, after it reported a sharp drop in profits.

The retailer, whose working practices have been heavily criticised this year, told the City that underlying profits are down by 57% over the six months to October 23rd.

It pinned some of the blame on the pound’s sharp decline since the Brexit vote (but this isn’t stopping the company spending $51m on a new plane for corporate business).

And chairman Keith Hellawell also launched a broadside at what he called an “extreme political, union and media campaign waged against this company”, adding:

“I begin to question whether this intense scrutiny is all ethically motivated.”

Hellawell may be referring to the Guardian’s undercover work at its Shirebrook warehouse -- for which my colleague Simon Goodley won a British Journalism award this week.

Today’s results also show that Sports Direct has agreed a cosmetics licensing deal with a company run by Ashley’s youngest daughter, Matilda:

Sports Direct's results

The Telegraph’s Ashley Armstrong tweets:

More here:

European stock markets have risen at the start of trading, on hopes that the ECB will extend its stimulus programme today.

All the main indices are up, with Germany’s DAX hitting a new one-year high.

European stock markets in early trading
European stock markets in early trading Photograph: Thomson Reuters

Conner Campbell of SpreadEx says markets have made “another perky start”, ahead of the ECB meeting this afternoon.

While the previously soaring banking stocks have cooled down somewhat, arguably because Italy has asked the ECB to give it until mid-January to rescue Monte dei Paschi, the DAX and CAC have immediately begun to build on the various highs struck on Wednesday.

That is because the Eurozone central bank is likely to announce an extension to its quantitative easing programme later today, with analysts expecting Mario Draghi and co. to move the bond-buying deadline beyond its current March 2017 end-point

A statue of priest Sallustio Bandini at Piazza Salimbeni outside the headquarters of the Monte dei Paschi di Siena bank in Siena.
A statue of priest Sallustio Bandini at Piazza Salimbeni outside the headquarters of the Monte dei Paschi di Siena bank in Siena. Photograph: Giuseppe Cacace/AFP/Getty Images

The Italian government has written to the European Central Bank, demanding that it gives them more time to rescue Monti dei Paschi (MPS), says the Financial Times today.

In a stern letter, Rome argues that the resignation of PM Matteo Renzi means it’s impossible to finalise the MPS rescue quickly. They want the ECB, which regulates the eurozone’s banks, to give them until mid-January to find the €5bn which MPS needs.

The letter comes from the MPS board, whose largest shareholder is the Italian Treasury. If the request is rejected, MPS could be forced into a state-led bailout within days.

The FT explains:

A so-called precautionary recapitalisation would involve imposing losses on subordinated debtholders and the indemnification of retail bondholders, the people said. The ECB is due to review the request as early as Thursday.

The ECB is understood to be unwilling to reveal its position until a letter is received. But bankers argue the supervisor is under pressure to take a tougher stance on MPS, which failed the European banks’ healthcheck in 2014 and 2016, potentially paving the way for the latest stand-off between Italy and EU authorities.

“If they don’t give the extension, the ECB must take responsibility. They will be pushing the button,” said one person. “We are only asking for five more weeks.”

FT: Italy demands more time from ECB to rescue Monte dei Paschi

The agenda: IT'S ECB DAY!

ECB chief Mario Draghi
ECB chief Mario Draghi Photograph: Bloomberg TV

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Like a greedy diner on Christmas Day, Mario Draghi has a lot on his plate today as the European Central Bank holds its final meeting of the year.

Draghi and his colleagues on the ECB governing council must decide whether to extend their bond-buying stimulus programme, which is on track to run out in March 2017.

Will they take the plunge and commit to another six months of quantitative easing, which is currently pumping €80bn into the eurozone economy each month? That would please the markets, which have grown addicted to regular glugs of ultra-loose monetary policy.

But there could be a sting in the tail, if the ECB also talks about ‘tapering’ its QE programme, by trimming the amount it buys each month. That would remind investors that the punch bowl can’t be refilled forever.

Here’s the timings:

  • 12.45pm GMT/1.45pm CET: ECB announces its monetary policy decisions
  • 1.30pm GMT/2.30pm CET: Mario Draghi’s press conference

The ECB must also consider the situation in Italy, where efforts to recapitalise its banking sector are dragging on.

Unless there’s a breakthough soon, the country’s oldest lender Monte Dei Paschi could be forced into a state-led bailout.

Also coming up...

Sports Direct, Mulberry, Capita, and Ocado are all reporting results this morning.

The headline news is that Sports Direct has posted a 25% tumble in pretax profits, and accused the media, unions and politicians of a damaging “campaign” against the company. More on that shortly....

And we’ll be watching Russian energy giant Rosneft, after the Russian government sold a €10.5bns stake in the company to a group of investors, including commodities trading firm Glencore.

Updated

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