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Goldman sees 50% chance of ECB QE

Goldman raises chance of ECB sovereign bond QE

There is a 50 percent chance that the European Central Bank (ECB) will start to buy government bonds in the first quarter of 2015, according to Goldman Sachs' top strategists.

"The emphasis that Draghi put on the urgency of expanding the balance sheet makes us think that government securities will be the asset of choice to pursue that objective, that's why we have that forecast right now," Francesco Garzarelli, co-head of global macro and markets research at Goldman Sachs, told CNBC on Thursday.

Unlike central banks in the U.K., U.S. and elsewhere, the ECB has not yet launched a sovereign bond-buying – or quantitative easing (QE) - program.

"The market is going from theme to theme and now the theme is the ECB. And there is an idea that the baton in this QE relay has been passed to the ECB, hence the government bond purchase discussion," Garzarelli added.

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The comments came ahead of ECB President Mario Draghi's regular news conference on Thursday. Continued disinflation and a decline in business activity in the euro zone have spurred hopes that the ECB's governing council, led by President Mario Draghi, could announce further stimulus measures in addition to the purchase of asset-backed securities and covered bonds.

ECB sovereign debt purchases have been vehemently opposed by Germany, but Draghi has reiterated that he is willing to use "additional unconventional instruments if needed".

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In late November, Goldman Sachs' global macro market research team released their top eight macro trades for 2015. The team, led by Garzarelli, forecast that the euro would fall to 1.15 against the dollar over the next 12 months, reflecting the bank's bullish view on the dollar and bearish outlook for the euro.

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Additional easing from the ECB - including possible sovereign bond purchases - could also push the currency lower, the team said, although it added that euro area economic activity would benefit from increasingly expansionary monetary policy.

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Peter Oppenheimer, chief global equities strategist at Goldman Sachs, told CNBC Europe's "Squawk Box" on Thursday that sovereign quantitative easing (QE) posed an interesting opportunity for European equities.

"The economic prospects in the euro area remain pretty poor and we're only looking at 6 percent profit growth across Europe. But the thing that provides the opportunity is that the risk premium is so high in Europe, partly reflecting fears of deflation. If we get sovereign QE and that reduces that tail risk a little bit, that's where you get the upside (for stocks)," he said.

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Speaking about the U.S. economy, Garzarelli and Oppenheimer said they believed the dollar had further to appreciate, despite the currency trading at a five-year high against a basket of currencies. They added that the U.S. Federal Reserve would raise interest rates in September 2015 and said that if the ECB started to buy government bonds, the Fed would feel more comfortable doing so.

"Having the euro zone in the doldrums is ultimately also bad for the United States so…if the ECB is bolder and gets things going then I think the Fed will have less of an issue in steering rates up," Garzarelli added.

- By CNBC's Holly Ellyatt. Follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld

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