With only six months to go until the scheduled end of QE, the European Central Bank president needs to weigh signs that the region’s recovery is losing momentum against increasing concern about asset scarcity.
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Image: Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S., August 30, 2016.
“The governing council confirms that the monthly asset purchases of 80 billion euros are meant to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim”, the bank said in a statement.
“If warranted, we will act by using all the instruments available within our mandate”, he said. “In the meantime, Draghi struggled manfully not to raise expectations of the inevitable”.
German government bond yields extended earlier gains, up 6.2 basis points on the day at minus 0.07 percent after hitting a high of minus 0.054 percent.
The euro rose, hitting a two week high against the U.S. dollar.
However, perhaps the most significant aspect of Draghi’s press conference saw him respond to a question whether central bankers in general are putting increased pressure on politicians to boost growth. United States stocks have been trading in a tight range in recent months amid growing uncertainty over the U.S. central bank’s interest-rate decision expected later this month.
While stressing that policy makers didn’t discuss the possibility of extending the duration of QE, he reaffirmed the Governing Council’s “unanimous” commitment to carry out current stimulus until it sees a “sustained adjustment in the path of inflation”. The stock was the biggest decliner in the S&P 500, falling $14.15 to $69.38.
However, with euro zone inflation still way below target and the ECB also trimming its 2017 growth forecast, Draghi said the bank was looking at options to enable it to pursue the money-printing program.
Still, in the absence of any major new economic data, stock indexes continued a recent pattern of mostly sluggish trading.
Growth in the region slowed to 0.3 per cent in the second quarter after the economy expanded 0.5 per cent in the three months through March.
Consumer stocks lost too, as retailers Wesfarmers Ltd and Woolworths Ltd lost 0.8 per cent and 1.6 per cent respectively. A purchasing-managers survey by IHS Markit signalled economic activity in the 19-nation bloc was at its weakest in 19 months.
“Our economists expect the European Central Bank to drop the deposit rate floor limit on the PSPP purchases tomorrow, yet refrain from extending the QE programme just yet”, ING say in their “crib sheet” note. “The economic recovery in the euro area is expected to be dampened by subdued foreign demand, partly related to uncertainty surrounding the United Kingdom referendum” on European Union membership. He also said the bank’s low rates were being more effectively transmitted through the banks and credit markets, meaning more effective stimulus.
The FTSE 100 got off to a strong start on Thursday morning, and while it gave up much of its gains later in the day, it still outperformed its European peers on Thursday after the news broke that the European Central Bank was planning to hold rates steady.
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PSPP is the buying up of government debt – or bonds – mostly from banks and financial institutions, with the aim of creating artificial demand for debt and thereby keeping borrowing costs capped.
