ECB expected to strike a more dovish tone on Thursday's meet

Weaker than expected ZEW survey has heightened concerns over the outlook for the euro-zone economy following the Brexit vote shock. With Brexit impact still unfolding, it’s very difficult to quantify its potential repercussions.  ZEW survey data showed that euro-zone investors' confidence declined more sharply than expected. The more forward leading expectations component plunged by 34.9 point to -14.7 in July reaching its lowest level since August 2012.

The release of the minutes from the ECB’s last policy meeting prior to the UK referendum clearly revealed that they believed that a Brexit vote could result in “significant, although difficult to anticipate, negative spill-overs to the euro area”. A view broadly consistent with the IMF’s updated forecasts released on Tuesday in which they downgraded their euro-zone growth forecast for next year by 0.2 percentage points to 1.4 percent.

The ECB is expected to leave its policy unchanged Thursday, but many investors expect bank officials to flag that fresh stimulus will be in the cards at its September meeting. Stocks in Europe edged higher and U.S. futures rose Wednesday as investors struck a cautiously optimistic tone ahead of the European Central Bank’s meeting Thursday.

“We expect the ECB to deliver further monetary easing in September when the staff’s economic forecasts are updated. It will be interesting to hear the comments from President Draghi tomorrow which may shed further light on whether the ECB is willing to lower rates further into negative territory, and potentially expand the universe of assets that are available to purchase under the QE programme,” said analyst at MUFG.