Growing divisions

The ECB policy account highlighted growing divisions at the central bank, with some members willing to contemplate even deeper rate cuts in exchange for dropping the restart of bond purchases. Others didn’t want to cut rates at all.

The ECB noted in the official account of the meeting that “a number of reservations were expressed about individual elements of the proposed policy package”. It still said that “the rational for a comprehensive package was widely shared”, although the account showed that difference of opinion was extensive, from the assessment of the economic outlook to the effectiveness of particular tools and the scale of the action.

The re-start of asset purchases in particular was controversial with one council member warnings that an open-ended program could lead to expectations for an increased pace of monthly buying that “would exhaust the purchasable universe and call into question the program limits”. In the end the decision on what to do when constraints become more pressing was put off, which means it is a question that Lagarde will have to face, and it will also be up to Draghi’s successor to try and heal the rift at the council.

Meanwhile in the equity market things look quite mixed, with the Euro Stoxx 50 off by -0.1% and the GER30 also -0.1% lower while France’s CAC 40 has edged up 0.2%. The UK100 is flat. GER30 posted a higher low for the third day in a row and its overall outlook is negative as it holds below the 50% retracement level at 12,150. As stated on Monday, only a big move above 12,200 could turn the focus back to the upside at the mid-12,000 area.

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Andria Pichidi

Market Analyst

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