The tough question to answer on the ECB

Connecting the dots on the QE extension/taper talk

The tough question to answer on the ECB is this: What's priced in?

It's clear that a strong majority of economists and market participants expect the ECB to extend bond purchases in March. I haven't read a single serious economist who thinks they will be tapered in December or end in March.

So many different views

At the very least it's a taper-extension. Something like an additional €280 billion at less than the €80 billion per month that's the status quo. Buying €10 billion less per month would be a seven-month process to ending the program with Nov 2017 as the final date.

Barclays believes the ECB will need to buy an average of €45 billion per month until the end of 2018. That's an additional €945 billion in purchases beyond March 2017.

PIMCO sees the full €80 billion of monthly buys continuing an additional 6-9 months. That's €480B to €720B total.

Others talk about sticking with full-scale QE at the current rates though 2017 and then thinking about tapering, which would be something above €1 trillion of additional purchases beyond what's planned.

The ECB itself has only said that it will continue €80 billion of monthly purchases until "at least" March.

So what is priced in?

The easiest way to look at it is the total. The ECB will have bought around €1.2 trillion in bonds by the end of October. By March, that will rise by €400 billion. That's fully priced in.

My best guess is that something above €500B but less than €1 trillion of additional purchases beyond March is full priced in. That's around a 30% increase in the total size of the program. The nuts and bolts are important but at the moment it looks as if we will have to wait for leaks or signs about what's next.

To me, the far greater risk is that purchases will be smaller. That could be mitigated by other programs but it seems to me like Draghi is loath to tangle with the courts on issuer limits and wants to pressure governments.

Ultimately, that will give the euro a boost but the time to buy it is at least a month away.