A few hours ago Mario Draghi, in an eagerly-awaited press conference, announced that the European Central Bank would finally commence a program of Quantitative Easing in excess of $1.23 trillion. The markets reacted relatively calmly to the announcement, without any wild volatility, but the Euro reached significant new lows against the Dollar, Pound, and Yen in early New York trading. Global equity markets were flat or slightly negative, and U.S. Treasuries were down following the news. The extent of the QE program was slightly stronger than the market was expecting following yesterday's leak.
QE Program Details
- Decentralised program of Euros 1.08 trillion in asset purchases.
- Purchases will be made by national banks in proportion to their bank's share in the capital of the ECB.
- Purchases will be made to the extent of Euros 60 billion per month until there is a sustained rise in eurozone inflation.
- TLTRO rate will be made equivalent to the MO rate.
- Issuer limit is 30% and no more than 25% of any issue will be purchased.
- Bond purchases will be made in range of maturities between 2 and 30 years, and will include bonds with negative yields.
- From July 2015, the program may include purchases of Greek Soverign Debt instruments.
Market Impact
- No obvious barrier to continuation of strong downwards trend in EUR, with long-term support at 1.10 in view. However, the result of the Greek election on Sunday may cause volatile moves in the EUR.
- Other currencies generally little changed but Danish central bank forced to cut interest rates twice to a negative rate of -0.35% in an attempt to maintain peg with Euro.
- Fear of expected boost to global equities not materialising, with the DAX and S&P500 both turning negative on the day.
QE Politics
- Greek PM says Greece will be excluded from QE if the bailout review stalls, as prospect of Syria victory on the horizon.
- President of ECB says decision to take launch the QE program was taken by consensus among ECB members, with no vote required.