Data released yesterday by Eurostat show inflation in the EuroZone as a whole growing at just 1.1% year-over-year. That’s actually good news since it’s the first year-over-year inflation rate over 1% since September 2013. You can look at this number and say that the European Central Bank’s program of quantitative easing is working. Finally. But inflation isn’t 1.1% in Germany. It’s 1.7% in the latest reading.
The European Central Bank today extended its bond-buying program to the end of 2017 but cut the monthly purchases to 60 billion euros from 80 billion euros. That would take the total for this quantitative-easing effort to 2.2 billion euros ($2.4 billion.) That will bring the total for this round of quantitative easing to about double the estimated size of the program at its inception in January 2015.
There’s been the Greenspan put, the Bernanke put, and the Yellen put–the belief that the Federal Reserve would ride to the rescue if U.S. stocks showed signs of struggling. Today let’s add the Draghi put as European stock markets demonstrate their faith that European Central Bank President Mario Draghi will support EuroZone financial markets after Sunday’s big loss in a constitutional referendum vote by Italian Prime Minister Matteo Renzi
Financial markets were hoping to hear something from the European Central Bank and its president Marie Draghi after today’s policy meeting about extending the bank’s current 80 billion euros ($88 billion) a month program of asset buying behind its current March 2017 expiration. Instead all financial markets heard was Draghi promise that the bank wouldn’t put an abrupt end to asset purchases in March
Today financial markets are anxiously wondering if they need to rethink the assumption of an endless supply of stimulus. Besides yesterday’s non-move and rhetorical silence from the European Central Bank, today the market is reacting to remarks from the Boston Federal Reserve Bank President that waiting too long to raise interest rates would threaten the U.S economy. And to the possibility that the Bank of Japan would like to see higher long-term interest rates
No cut in interest rates. No expansion or extension of asset purchases. No nothing from the governors of the European Central Bank at today’s meeting
While other central banks–the Bank of England and the Bank of Japan, for example–are signaling their willingness to throw more cash at the global financial system in the wake of the Brexit vote that is likely to send the United Kingdom tumbling out of the European Union, Jens Weidmann, president of Germany’s Bundesbank, doesn’t want to play.
After a Monday speech by Boston Federal Reserve Bank President Eric Rosengren raised the possibility that Wall Street has mis-interpreted the Fed’s plans on interest rates, the markets are looking to the release tomorrow of minutes from the Fed’s March 16 meeting for reassurance. Could it be that the Federal Reserve will implement its next interest rate increase sooner than is now expected?
Yesterday, financial markets fell as traders and investors decided that the policy changes–another 10 basis point cut to deposit rates and an increase of 10 billion euros a month in asset purchases–weren’t enough, especially in the face of lower forecasts for inflation and economic growth from the central bank. Today, financial markets seem to have decided that they’re reason to rally.
The longer the financial markets thought about the actions announced by the European Central Bank today, the less impressed markets were. The STOXX 600 Europe Index had climbed as much as 2.5% during the day, but after peaking around 1 p.m., the index finished down 1.7% for the day.
After being disappointed in December when the European Central Bank delivered only the minim expected, financial markets are going into tomorrow, March 10, positioned for another disappointment from Mario Draghi and the EuroZone central bank.
