The ECB was under fire on Friday (Dec 4) for failing to act as decisively as expected to rekindle inflation, with some market players suspecting divisions among the bank’s top brass stopping it from doing more.
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European Central Bank (ECB) president Mario Draghi (right) and vice-president Vitor Constancio addressing a news conference at the ECB headquarters in Frankfurt yesterday.
“The big story is the disappointment in the markets as the euro surged through 1.09 after expectations were that we would see more in terms of policy”, said James Hughes, chief market analyst at GKFX.
European stocks sank, logging their worst session in more than three months as ECB plans for additional fiscal stimulus fell short of market expectations.
In a speech yesterday Janet Yellen was more hawkish than traders were expecting; elevating the potential for a December rate lift-off.
The Dow Jones industrial average lost 262 points, or 1.5 per cent, to 17,467 as of 2:30 p.m. Eastern.
Given the extent of the Euro appreciation, and with expectations that US data won’t be hugely impactful with trader focus dominated by European developments, the Euro to US Dollar (EUR/USD) exchange rate is likely to hold losses for the remainder of Thursday’s trade.
But Thibault Mercier at BNP Paribas suggested the market had overreacted and that Draghi’s underlying assessment that recovery was underway in the 19 countries that share the euro was correct. The 10 basis point cut to the deposit facility rate also failed to impress market participants and euro bears were caught off guard as the single currency rallied over 3% immediately after the release, its biggest one-day rally in six years, trading as high as 1.0981 against the dollar as traders hurriedly covered short positions.
It spun markets. The euro jumped more than 1 percent against the dollar, rebounding sharply from a 7-1/2-month low hit hours previously.
It is quite amusing, given all those post formal communications that European Central Bank would do whatever it must or in its power or even take measures to quickly bring back Euro Zone inflation close to European Central Bank target of below but close to 2%.
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“But he has also hobbled his ability to move markets with rhetoric alone, since this recent experience has been much more talk than material action”. Fed chair Yellen told Congress US household spending had been “particularly solid in 2015”, and auto sales were strong, backing the case for the central bank to raise interest rates this month for the first time in nearly a decade. Brent crude, which is used to set prices for global oils, climbed $1.53, or 3.6 per cent, to $44.01 a barrel in London.
