Investors who were looking for specific details about the future trajectory of monetary policy from yesterday’s European Central Bank (ECB) press conference would have been sorely disappointed. Granted there was very little consensus that there was going to be any new policy measures announced, but ECB chief Mario Draghi and his staff still managed to fall short of even the lowest expectations. This lack of substance is best illustrated by the fact that Mr Draghi’s prepared statement at the beginning of the press conference, which usually run for 15 to 20 minutes, lasted less than five minutes.
However, Mr Draghi said nothing to dampen expectations that the new staff forecasts in December would support the extension of the of the current asset purchase program past the current expiry date of March 2017. This assessment is based on two economic realities: First, there are no convincing signs of an upward trend in Euro zone inflation. Second, growth risks in Europe’s largest economies are skewed to the downside. European equity markets were happy with Mr Draghi’s dovish tone as both the French CAC and German DAX both posted fresh two-month highs at 4557 and 10,750 respectfully.
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The Euro has responded accordingly with the EUR/USD dipping below the 1.0900 handle for the first time in over four months in today’s Asian session. Reading between the lines of the ECB statement, it’s likely that December will be the time when the asset purchase program is extended by at least six months and the asset pool will be expanded. In contrast, recent comments from FED Governors Fischer and Dudley keep the prospects of further rate normalization in the USA very much on the table.
