The European Central Bank (ECB) did not disappoint the markets with its quantitative easing (QE) program. The new program has a headline value of 1.14 trillion euros and involves monthly buying of 60 billion euros worth of bonds through September, 2016. The most important aspect of the program is that it is "open ended." If inflation has not hit the ECB's target level, then the program will continue until inflation rises.
The risk markets reacted positively, with stocks rising across the globe. The other major impact from the announcement was the euro fell to an 11-year low against the dollar. The weakening of the euro and other major currencies versus the U.S. dollar is a theme we expect to continue throughout 2015 as dollar assets continue to be in demand. As countries try to stimulate their economies, watch for more volatility and losses from institutions with above-average exposure to foreign currencies.
We expect the increase in U.S. equities to continue in the week ahead. Stocks will be driven higher by both decent earnings and data that shows the U.S. economy is growing modestly. We expect Treasury bonds will continue to be well bid and the 10-year Treasury rate will remain relatively stable around 1.80%.
In this environment, volatility should decline from its current elevated level. A few of the key market-moving items in the week ahead will be corporate earnings, the aftermath of the elections in Greece, and Friday's advance estimate release of U.S. fourth quarter Gross Domestic Product (GDP).
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