The ECB meeting is approaching and change may be significant

The ECB is expected to take test trials on the outcome of its monetary policy at its next week's meeting, which may end with publicly announcing the plans when we will see an exit from this policy.
It is very likely that ECB President Mario Draghi will use the June 14th summit in Latvia as an opportunity to discuss the end of the buy-back program, according to market observers.
Currently, bond purchases are scheduled to take place at least until September. However, there is no more clarity about the time of their end, which brings serious uncertainty among market participants.
And many market observers see a good time at the ECB meeting to "prepare the ground". Dearly, it is possible to use the press conference to signal that a decision on the end of the stimulus could come at the July meeting of the bank.
Even if the topic is concerned, there would be serious progress on the way out of the incentives, comment market observers.
The June decision may also be accompanied by new economic forecasts on the euro area by the ECB, which also give some signals to investors. If the forecasts are good, investors may decide that we will see a recent exit from the incentives.

Italian banks have led the downturn in Europe

Italian banks have led the fall of European financial companies downwards as a result of growing fears of new elections in the country that could boost the position of major populist parties in the country.
The decline was driven by the shares of Banca Monte dei Paschi di Siena SpA, the volatile government-backed bank whose shares lost 7.8% of its value.
Seven of the eight worst-performing stocks in the Bloomberg Europe Banks Index were at European banks. The shares of the largest Italian bank - UniCredit SpA, lost nearly 5% of its value.
Meanwhile, the decline in Italian banking stocks has triggered the deletion of the growth of FTSE MIB Italian index since the beginning of the year.
New political choices, coupled with growing consensus opinions among populists, seriously frighten investors, according Gabriela Pinosa, head of Go-spa Consulting, a Milan-based consulting company quoted by Bloombaerg.
The victory of Euro-skeptics may lead to a gradual withdrawal of Italy from the eurozone and a potential debt write-off. And this can be extremely negative for the euro.
Interest rates on 10-year Italian bonds rose yesterday to over 2.6%, which was their highest level in nearly four years.
The fall in Italian bond prices has occurred after populist leader Mateo Salvini said it does not make much sense for Italy to remain within the EU unless the Union rewrote its rules.
The political situation seems extremely unfavorable for Italian bonds and debt holders because of the future unpredictability of vague Italian leaders.

Inflation in the eurozone slows down

Inflation in the eurozone slowed down in the first month of the year, which reduced the expectations of a large part of the market for a more recent normalization of interest rate policy by the ECB.
The consumer price index rose 1.3% in the first month of the year, down from 1.4% a month earlier. This was the lowest level of inflation since July 2017, according to preliminary data from the euro area.
Inflation in the eurozone continues to be at levels below the target of the European Central Bank of 2%, which could be a serious challenge to Draghi's plans for normalizing interest rates and ending incentives soon.
Despite data, the euro continued to trade against the dollar at extremely high levels above 1.2450.
In fact, the euro is not strong, but the dollar is weak. Besides, shortly before the Fed's interest rate decision today. Analysts expect the reserve to keep interest rates unchanged, and their next increase to be left to the new Fed leader, Jerome Powell, who will replace Yellen next month.
A major role for low inflation in the eurozone for a month is energy prices. They rose in the first month of the year by 2.1%, following an increase of 2.9% in December.
A more robust rise of 1.9% was seen in food and tobacco products, which grew by more than 2% last month.

Inflation in the euro zone accelerated in February

In February, inflation in the eurozone managed to exceed the target level of the ECB of just under 2 percent for the first time in four years thanks to a new rise in energy prices, showed final data from Eurostat, confirming preliminary assessment of European statistics.
The consumer price index (CPI) in the euro zone rose in February on a monthly basis by 0.4% and increased yoy by 2.0% after rising by 1.8% in January. This is the highest inflation in the region from January 2013 onwards, when it also increased by 2%.
Thus inflation in the euro zone managed to exceed, albeit small, medium-term target level of the ECB of just under 2 percent for the first time in four years.
Energy prices jumped in February by 9.3% annually, while prices of food, beverages and tobacco products rose by 2.5 percent from a year earlier, while prices of services increased by 1.3%. These data confirm that the sharp rise in inflation in recent months is due to the greatest extent of the solid growth of energy prices and a rise in food prices.
However, the main index of consumer prices (excluding prices of food, tobacco and energy) rose for the third consecutive month by 0.9%.

ECB expects a sharp rise in inflation

Inflation in the euro area will exceed 1% at the end of the year, reaching levels not seen since the end of 2013, while growth in the global economy will increase speed. It was said the European Central Bank's latest economic bulletin, released today.
In the medium term prospects for global business activity remain in favor of strengthening of economic growth, though at a pace that is below its pre-crisis levels. Overall growth in developed economies will be a little better and it seems that the economies of emerging markets will start to get away from the bottom, says ECB.
However, the global outlook remains overshadowed by the unfavorable impact of lower commodity prices on countries exporting goods. The rebalancing of the Chinese economy and uncertainty about future US policy after the inauguration of the new US president Donald Trump also will have their influence. It was underlined by the central bank, as today's economic bulletin is largely in line with bank's statement after the last annual meeting on 8 December.
The ECB reiterated that they stand ready to use all available financial instruments within itheir mandate and that if necessary they can make new changes both in size and in duration of the program for "quantitative easing".

By the end of the year ECB may extend the program of quantitative easing

Thursday was very eventful for the major currency pair. Immediately after the September meeting of the European Central Bank, the euro/dollar rose sharply and touched a two-week high at 1.1316, but quickly came back under the 1.13.
ECB left the interest rate at zero, the deposit rate at -0.4% and the monthly purchase of assets amount to 80 billion euro. In his comments after the meeting, Mario Draghi said that QE will continue until the designated period (March of the following year) or longer, if adjustments of inflation are required. The consumer price index, on the assessment of the ECB, is steadily improving. Eurozone GDP in the third quarter will be equal to growth in April-June this year, and in general, the ECB expected growth of the region's GDP by 1.7% by the end of 2016.
Investors appear to be reasoned as follows: while the statistics for the euro area at most part is positive, the European regulator will not increase or extend QE. However, such a possibility is present for further meetings. March 2017 is not so far away as it seems. For half a year significant improvement in the European economic system could not happen, and the ECB is not one of those, who would make desperate attempts to align the boat at the last minute. Typically, Mario Draghi warnes markets in advance about the bank's readiness to act. It is possible that in November and December, the ECB would inform the capital markets of the intention to expand or extend the QE. In the meantime, let the euro fans rejoice.