Industry commentators have said a string of mixed economic data, combined with the political turmoil following the Italian election, has thrown into question when the European Central Bank (ECB) will bring an end to its €2.3trn bond-buying programme, previously indicated to be concluded in September.
Last October, ECB president Mario Draghi announced the programme would end in September 2018 but caveated that statement by adding "or beyond, if necessary".
In an Investment Week Twitter poll, ahead of the ECB meeting tomorrow, 72% of readers said the ECB would extend quantitative easing (QE) beyond the set September date, while 28% said they would halt it, indicating the divided views of the investment community.
Although it was previously expected QE would conclude this year, weaker than expected data and fresh political turmoil has caused some to push out expectations.
For example, eurozone GDP growth fell from 0.7% in Q4 2017 to 0.4% in Q1, the slowest rate since Q3 2016.
Furthermore, politics once again entered centre stage in Italy, and continues to linger over the ECB's decision, following the resignation and return of Prime Minister Giuseppe Conte within the space of two weeks.
There are concerns the two far-right parties now in power, the Five Star Movement and Lega, could form a government challenging the future of the European project.
With the uncertainty in Italy, Hetal Mehta, senior European economist at Legal & General Investment Management, said it could lead to Draghi repeating his statement from 2012 that he will do "whatever it takes" to keep the euro area together.
"After the political saga in Italy spilled over into financial markets in May, triggering flashbacks to the dark days of the sovereign debt crisis, investors are asking whether the central bank can end its QE programme as is thought to be planned," Mehta said.
Furthermore, David Zahn, head of European fixed income at Franklin Templeton, said it was "most likely" the ECB will extend its asset purchase programme beyond the end of the year into 2019 as a result of the impact in Italy.
He argued Draghi would want to keep his "options open" until the effects of political developments in Italy were seen in the data.
"Draghi will be asked some tricky questions on Italy," Zahn said. "We believe it is unlikely the ECB will stop QE until there is some resolution.
"The recent flare-up in Italy only reinforces our view that the ECB will extend the asset-buying programme into 2019. And, we think the likelihood of rate hikes is now pushed out much further into the future.
"It is much easier for the ECB to adapt (grow or reduce) an existing QE programme than to restart an expired programme."
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