European Central Bank chief Mario Draghi announced on Thursday an aggressive easing package by cutting rates and expanding asset purchases, but suggested there would be no further cuts. Eurozone stock fell by 1.5 percent and euro area bond yields soared – all effectively tightening monetary conditions and so going counter to Draghi’s aims. The lower the interest rate, the harder it is for banks to pass on costs to its borrowers and the news of the rate cuts sent banking stocks lower.
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“We don’t anticipate it will be necessary to reduce rates further”, he told reporters that day.
British banks were among the top sectoral risers, up 2 percent with Barclays, Standard Charterd, Royal Bank of Scotland and Lloyds all rising between 2.6 percent and 3.8 percent. That sentiment got a boost from stability in oil prices and an improvement US data, though signs of weakness persisted in readings on American manufacturing and European prices.
“The ECB has created a framework within which banks can rebuild profitability”, said Stephen Macklow-Smith, head of European equities strategy at J.P. Morgan Asset Management.
But Draghi insisted the bank had not used up all of its gunpowder.
On the one hand, we have an enormous, outside-day bullish reversal in EURUSD that looks like a straightforward buy signal, but on the other hand, we have past examples in which tremendous ECB-day volatility failed to trigger notable follow through – specifically, the June 2014 European Central Bank meeting saw a strong reversal from intraday lows (and multi-month lows) and closed the day over a percent off the lows and at a new two-week high.
While mining companies and telephone shares were among the S&P 500’s gainers Thursday, energy producers fell as oil retreated from a three-month high.
MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.3 per cent.
First, he said, negative interest rates as a monetary policy tool are “effectively exhausted” . It still may be enough to make corporate bonds even less accessible and even more expensive for everyone else trying to buy them.
While policymakers are expected to keep rates on hold, economists in a Reuters poll released today believe the Fed will hike rates again by the end of June and once more before year’s end.
A new financial program for banks – termed targeted longer-term refinancing options (TLTRO) – will also commence in June 2016, with an interest rate of approximately 0.4 per cent.
The most active gold contract for April delivery added 15.4 dollars, or 1.22 percent, to settle at 1,272.80 dollars per ounce.
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The Kiwi dollar tumbled to $0.6618 and Reserve Bank of New Zealand governor Graeme Wheeler cited China as a major risk, reflecting global concerns over a slowdown in the world’s second-biggest economy.
