QE quandary

The ECB needs to engineer a quickening of inflation across the region to avoid deviating further from its inflation target. A consensus for action does seem to be emerging in the governing council, but it is still likely that that piecemeal gestures – such as a negative deposit rate – will be the straws that the ECB grapples for first. However, only QE has the scale to impact and objections to this are evaporating fast. We think a programme would have to be substantial, probably around the €1.0trn mark. A weaker euro (below 1.30 vs. the US dollar) is the safest way to invest in this strategy. QE would also support sovereign bonds across the region and we would be long German bunds and periphery debt, specifically Spain, Portugal and Ireland. Eurozone equity markets should also boom temporarily.

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