European markets are lower in the aftermath of the Draghi’s speech. Despite delivering well-tailored statement, market participants are wary about taking risk. Investors were hoping that the ECB will be immensely dovish with their tone, but the message was very fine-tuned. During most of his speech, Draghi was combating the criticism about the ECB’s decision and tried to ward off his strategies. The French manufacturing PMI data released today has intensified the adverse sentiment among traders and the mood has become very much negative.
The significant element from the ECB’s press conference was that the president kept the door open for more quantitative easing
The significant element from the ECB’s press conference was that the president kept the door open for more quantitative easing and this is the least element what the market participants were expecting from him. Draghi’s approach was very much based on buying time and the president first wants to assess the impact of his new policies before the bank can adopt anything further.
Given that the negative interest rates are already taking a toll on the banks’ balance sheet, along with massive criticism from Germany, Draghi had to assure markets that the bank is well aware of this and their strategy has improved the credit demand in the Eurozone. Nonetheless, we do envisage that the bank is not going to lower the interest rates anytime soon and perhaps adhere to other options such as: increase the size of their purchase or extend the maturity dates.
The Euro has given all its gain against the dollar after the ECB’s decision. This is despite the fact that the ECB has shown no immediate need to add stimulus which should boost the value of the euro. However, the trade hasn’t worked according to its logic and traders have decided to shave some profit this trade. This is mainly due the reason as the ECB president has said that the risk is still tilted towards the downside for the global growth, the bank will continue to use its tools to combat this.
As for the helicopter money concept which has been flying around for some time, he has thrown cold water on those expectations and confirmed that there are many challenges for putting that in practice and the bank has not done any deep study on this.