ECB new stimulus package
ECB President Mario Draghi announced a number of measures designed to boost the sluggish Eurozone economy, including rate cuts, corporate bond purchases, and new loans for banks. Global markets responded positively to the ECB’s new stimulus package.
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The ECB obviously is dominating the narrative today. In aggregate the policy actions were more substantial than expected (EU20B expansion in QE pace, inclusion of corporate bonds in QE program, and LTROs w/rates as low as the deposit rate) but many people view the EUR price action as a verdict on Draghi efficacy and w/it rallying there is some talk that the ECB underwhelmed (the lack of an LSAP extension and the absence of deposit tiering are considered “negatives”). The problem (from the perspective of stocks, esp. US ones) is broader – the amount of accommodation being provided by the ECB is already substantial but it isn’t as if the world is on the brink of a crisis (“shock and awe” policy actions from CBs of late have yielded diminishing returns compared to the immediate post-crisis period of ’08-’12 and that will likely be the same w/today’s ECB moves. Central banks have done a lot since ’08 landscape going forward like they have in the past). Therefore, as the macro catalyst calendar.
While Evercore states:
We don’t want to be greedy at this point but will look forward with interest to see whether in the press conference Draghi goes even further and underlines the open-ended element of the ECB QE program (not in our base case, but in our upside risk case).
Even without an appreciable shift on open-endedness, this is a very powerful package. We believe this set of decisions should reassert Draghi’s credibility in the eyes of the market – and strengthen the larger institutional credibility of the ECB as an institution that is not resigned to miss its inflation goal in perpetuity and has both the will and the means to defend expectations and seek to push inflation higher.
See the following visualizations which highlight relevant figures regarding the ECB new stimulus package.
ECB new stimulus package
European Central Bank Deposit Rate
European Central Bank Refinancing Rate
European Central Bank Lending Rate
USD to EUR Exchange Rate – 1 Year