In the 19th century, Britain was "the empire on which the sun never sets." In the present day, that moniker more aptly describes the reign of stimulative central bank policies. And that has stock market bulls shouting "Tally-ho!"
In the same week that the Federal Reserve ended its asset purchasing program, the Bank of Japan delighted markets with the announcement that it will increase purchases of Japanese government bonds and other assets. The central bank signaled its intention to continue its strenuous effort to improve Japan's economy and quash deflation expectations.
The question now is whether the European Central Bank will look to follow suit, as the ECB is set to announce a rate decision on Thursday, and follow that up with a press conference. Whether it comes now or in the near future, further ECB action is widely anticipated by many market participants, as the bank likely feels the need to combat a stagnant European economy that is also battling off deflation.
The great hope is that ECB president Mario Draghi will announce, or at least foreshadow, U.S. or Japan-style bond purchases.
"It's difficult to say exactly what the market's expecting, but clearly if the language remains unchanged, that will be a disappointment," commented Deutsche Bank FX strategist Oliver Harvey. "European risk assets are certainly looking for more direction from the ECB."
Interestingly, on top of serious concerns about Eurozone growth, the BOJ's move could increase the odds for ECB stimulus. The euro has jumped against the yen, and if the ECB fails to act, the euro could grow even stronger—which is bad news for European exporters. That perception explains why the euro fell against the dollar in Friday trading, according to Kathy Lien of BK Asset Management.
Still, Lien doesn't expect to see stimulative action—just more dovish words. "The ECB probably takes more steps to talk down its currency," she predicted.