ECB disappoints with QE tapering. The ECB left rates unchanged, but while the QE program was extended, monthly asset purchases were cut to EUR 60 bln from EUR 80 bln. The central bank said in the initial statement that QE will be increased if the outlook turns less favourable, but that wasn’t enough to prevent a sharp drop in Bund futures, which already declined going into the announcement and are now down 132 ticks on the day, while the cash yield is up 9.3 bp and spreads widen sharply, with the Italian 10-year up 15.2 bp, the Spanish up 13.4 bp and the Portugeuse 10 bp. ECB settles for less monthly QE for longer, in what looks like a typical European compromise. Monthly purchase volumes were cut back, but instead of the 6 months QE extension markets had been looking for the ECB committed to a 9 months extension and also reserved the right to increase monthly purchases if the overall situation changes. And with officials previously stressing that there will be no abrupt end to monthly purchases, this means the ECB will remain in the market for the foreseeable future and the balance sheet will continue to expand with today’s package amounting to at least half a trillion Euros in additional stimulus. So still much for markets to cheer, even if the initial reaction clearly shows disappointment Draghi will hope that things settle down quickly, when the details start to sink in.
EURUSD which had broken 1.0800 earlier falls 50 pts to 1.0750, the ECB press conference up next will be more interesting than usual.
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