Asian and European shares are trading higher on Friday, the euro is lower against a basket of currencies, and U.S. stock futures are pointing to a higher opening.
Yesterday European and U.S. markets reacted with wild swings following the ECB’s decision to provide aggressive monetary easing measures in an effort create the right monetary environment for economic growth to improve across the 19 member euro area currency zone.
The euro dropped to the lowest level in 6 weeks against the dollar and touched 1.0824 after ECB President Mario Draghi announced aggressive monetary policy steps taken that includes cutting its interest rate on the deposit facility by 10 basis to -0.40 percent, expanding its QE program of asset purchases from €60 to €80 billion, and providing a new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years launching in June 2016.
Midway the ECB press conference after Draghi admitted the ECB “doesn’t anticipate that it will be necessary to reduce rates further”, the euro swiftly reversed course and jumped 1.7 percent higher by the time the press conference ended.
The market seemed to have overlooked Draghi’s very next sentence in which he offered a notable ray of hope that the monetary easing card is still left on the table.
“Of course, new facts can change the situation and the outlook. Let me also add that the experience we’ve had with negative rates, in our case at least, has been very positive, in easing financing conditions, and in the transmission of these better financing conditions to the real economy” Draghi said.
When Draghi was asked by a reporter about the perceived lack of fire power of central banks to use their policy instruments effectively to generate economic growth, he explained that the best answer to this question is being given by the ECB’S accommodative monetary policies decisions reached on Thursday.
“It’s a fairly long list of measures, and each one of them is very significant and devised to have the maximum impact in boosting the economy, and the return to price stability. So we have shown that we are not short of ammunition” Draghi said.
* As I explained on my You tube video yesterday, due to other time commitments, I was only able to partially report about Draghi’s comments during my post from yesterday morning. Hence the reason for this post to expand further about Draghi’s comments.
** Also, I want to add a correction from my video segment posted yesterday about the market which I have since removed.
When I spoke about the ECB’s cut with their deposit rate, I incorrectly said it was at .30 percent and left out the fact that the .30 deposit rate is (negative) -.30 percent. I apologize for the mistake.
However, all of my writing about the topic was correct. I had a lot of information in my head at the time before the camera and simply failed to point out that the deposit rate was negative. In my opinion, reporting and commenting on video about the ECB’s monetary policy is probably one of the most complicated and deep topics to broach…. with the exception of Syria.
See You Tube video below of Draghi’s press conference.