Markets Blown Away by Draghi’s Bazooka

Much has been made of the ECBs ability to deliver the much needed bazooka in recent months, particularly after it disappointed so badly in December, but the central bank came out all guns blazing on Thursday, cutting rates across the board and increasing both the size of the quantitative easing program and the list of eligible assets.

The decision to ease monetary policy across a broad range of tools sent a strong message to the markets that it is not willing to sit by while they repeatedly fall well short of their 2% inflation target. Moreover, it seems that policy makers took full advantage of the inability of German Bundesbank Head, and known hawk, Jens Weidmann, to vote against the range of measures.

The markets responded as you’d expect to the announcement, with the euro going into freefall, down almost two cents against the dollar from today’s high. European equities were given a major boost, while yields on eurozone debt fell considerably in response to the increase of asset purchases by 20 billion euros, more than the markets had been expecting.

All things considered, the ECB has well and truly over delivered today. We’re sure to get more details from Mario Draghi in the press conference shortly, during which I would expect the markets to remain quite volatile.

The full list of ECB stimulus measures are as follows:

  • Main refinancing rate – 0% from 0.05% (five basis point cut)
  • Marginal lensing rate – 0.25% from 0.3% (five basis point cut)
  • Deposit rate – -0.4% from -0.3% (10 basis point cut)
  • Asset Purchases – €80 billion per month from €60 billion
  • Asset Purchases – Investment grade bonds by non-bank corporates will be included in list of assets
  • TLTRO II (Targeted longer-term refinancing operations) – New series with four year maturity will be launched starting June 2016

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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