Thursday preview: ECB's Draghi to spill the beans on QE

The European Central Bank 's announcement will take centre stage on Thursday as Mario Draghi and co are expected to spill the beans on their plans to turn down the tap on its bond buying scheme.

After unleashing its monthly quantitative easing scheme in 2015 and then expanding it the following year, last December the ECB extended the bond buying bonanza but tapered the monthly outlay to €60bn of bonds per month and on Thursday may pull a similar card from the hat.

With the eurozone's recovery well on track, a reduction of the ECB’s monthly asset purchases seems to be a foregone conclusion, with the continued undershooting of inflation the main obstacle to the ECB offering a hawkish surprise on Thursday.

At the September meeting inflation projections were unchanged at 1.5% for the current year but forecasts for 2018 were revised down to 1.2% from 1.3% and to 1.5% in 2019.

Draghi hinted at a decline in headline inflation due to sliding energy prices towards the year end. But he was a touch more upbeat on underlying pressures, saying inflation ex-fuel and food is showing signs of picking up but, critically, is yet to show ‘convincing’ signs of sustained upward trend.

Thursday's news will be less a case of not whether the ECB will taper, but exactly how quickly it plans to do so, said analyst Neil Wilson at ETX Capital. "It is likely to take its time as a way to push back market expectations for interest rate rises."

Strategists at Credit Suisse predicted Draghi would announce a nine-month extension of ECB bond buying until September 2018 at a reduced pace of "at least" €20bn per month, with the first quarter of 2018 to see further ratcheting down of QE.

Oxford Economics suggested trading in a larger upfront reduction of the QE pace to €30bn per month for a longer extension of the program until September 2018 "should strike the right balance" and that "combined with a strengthened forward guidance and dovish rhetoric this should keep the euro in check".

For Rabobank's macro chief Elwin de Groot, QE is likely to be wound down in three steps of €20bn, bringing purchases to zero in the second half of 2018.

"A few other scenarios are realistic alternatives," he stressed, but admitting his scenario is on the more hawkish side of the tapering spectrum.

"If the ECB opts for such an exit, this could lead to a negative market reaction in the short-run. However, we would argue that ultimately the flexibility given by this approach could actually help stabilising yields in the long run (and so limit sharp movements)."

Barclays third quarter results may be the UK corporate highlight on Thursday, with the consensus forecast for underlying PBT of £1.43bn.

Analysts at UBS were concerned that "a soft quarter for industry markets revenues and management’s recent confirmation that higher returns in CIB are to be sought by investing in, rather than cutting, costs may leave holders frustrated until revenues turn high".

The results are likely to be dominated by debate around returns – current and prospective – within the Corporate and Investment Banking division, with Barclays no longer publishing core and non-core divisional information.

"We do not, however, expect the bank to restate its historic numbers, possibly leading CIB to look weaker sequentially than it is," UBS said.

For those at Investec is expecting PBT of £1.44bn, with a "further underwhelming quarter" for investment banking and impairments of £522m.

"We are not particularly expecting any fresh clarity around legacy items this quarter. Indeed, we now assume that there is little prospect of any [US Department of Justice residential mortgage backed securities] settlement in 2017, nor any likelihood of visibility around the cost of any such settlement by the time of 2017 full-year results in February/March 2018. As such, our provisioning assumptions for such a settlement move into 2018e."

Thursday October 26

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Balance of Trade (US) (13:30)
Continuing Claims (US) (13:30)
ECB Interest Rate (EU) (12:45)
GFK Consumer Confidence (GER) (07:00)
Initial Jobless Claims (US) (13:30)
M3 Money Supply (EU) (09:00)
Pending Homes Sales (US) (15:00)

UK ECONOMIC ANNOUNCEMENTS
CBI Distributive Trades Surveys (11:00)

FINALS
Connect Group, Redefine International

INTERIMS
C&C Group, Vitesse Media

TRADING ANNOUNCEMENTS
Avocet Mining, Clinigen Group, Kaz Minerals, National Express Group, OPG Power Ventures, Relx, Societatea Energetica Electrica SA GDR (Reg S)

ANNUAL REPORT
Petra Diamonds Ltd.(DI)

SPECIAL EX-DIVIDEND DATE
Barratt Developments, Bioventix

EGMS
Societatea Energetica Electrica SA GDR (Reg S)

AGMS
Alumasc Group, Argos Resources Ltd. (DI), Imagination Technologies Group, Mattioli Woods, Mila Resources, Standard Life UK Smaller Companies Trust

FINAL DIVIDEND PAYMENT DATE
Pembroke Vct, Pembroke Vct B

FINAL EX-DIVIDEND DATE
Animalcare Group, Avingtrans, Barratt Developments, Bioventix, Dechra Pharmaceuticals, El Oro Ltd, Ferguson, Galliford Try, Haynes Publishing Group, JPMorgan Emerging Markets Inv Trust, Mcbride, Mulberry Group, Ricardo, Thorpe (F.W.), Wetherspoon (J.D.)

INTERIM DIVIDEND PAYMENT DATE
Capital & Regional, Equiniti Group , Oakley Capital Investments Ltd. (DI)

INTERIM EX-DIVIDEND DATE
Booker Group, CareTech Holding, Coats Group, Harwood Wealth Management Group, ITV, Lookers, M&C Saatchi, Moss Bros Group, Next Fifteen Communications, Rolls-Royce Holdings, U And I Group, William Hill

QUARTERLY EX-DIVIDEND DATE
APQ Global Limited, Blue Capital Alternative Income Fund Ltd (DI), Custodian Reit