1:30pm on December 8 marks the start time of the press conference held by Mario Draghi, the head of the ECB, after the final 2016 meeting of the bank’s monetary policy setting committee, the Governing Council, with the group’s decision announced at 12:45pm.

What are the possible outcomes for the meeting and what will be the market reaction?

The majority of expectations point towards a six month extension of the bank’s current QE programme, moving the end date of the programme to September 2017 from the current date of March 2017. This extension would continue the current asset purchase level of €80bn per month on both sovereign and corporate debt.

Monday’s biggest market movers were UK Banks, rallying on expectations that the QE extension would indeed take place. The accomodative policy currently in place by Europe’s central bank is attractive for UK lenders, as there is an abundant supply of cheap money available to them. If the programme is extended by 6-months with an €80bn monthly budget, could the bank rally continue?

Also on the cards is the issue of tapering, of which no small amount of speculation has been made.

A Bloomberg report on October 4 citing an ECB source that claimed tapering had been a topic of conversation provoked a 3.4% decline in the price of Gold, whilst the Euro spiked over 0.4% against the US Dollar and an even greater 0.5% against the poorly performing Pound.

However, there are other possibilities that could arise. Some economists believe that the ECB could instead opt for a longer term 9-month extension, with a decrease in the amount of assets available to purchase to €60bn from the current rate of €80bn in an attempt to signal that the policy is not open-ended.  Another (more impacting) possibility is that Draghi et al announce the 6-month extension of the programme without actually stating the maximum value of assets that it will purchase per month, allowing the bank the headroom to decrease total asset spend . This second approach would echo the current policy of the Bank of Japan, however this policy seems less likely to be implemented without further inroads made on the Japanese central bank’s macroeconomic targets being made.

Both of these potential tweaks to the QE program would mark a surprising hawkish turn from the ECB, which, in recent times, has stuck solely to an ultra-dovish accomodative approach to reach its macroeconomic targets. As a result, it is far less likely that we will see one of these policies yet, however some mention of a form of tapering could be on the cards.

Should 2016’s final Governing Council session produce anything other than the widely expected dovish outcome, it could be that we find ourselves in a situation similar to October 4 – a Gold sell-off and a spike in EUR pairings.

However, with the Eurozone inflation rate currently rising at a steady rate, Draghi and the Governing Council can be happy that they are well on their way to achieving the ECB’s targets. Will they surprise markets and announce any tapering measures or will it remain business as usual in Frankfurt?

Henry Croft, Research Analyst, 7 December