It was a bumper afternoon for ECB QE bingo, the winners being those who had a 9 month extension to the previous March end-point but at €60 billion, not €80 billion, a month – something Draghi specifically argued was not the ECB ‘tapering’ its stimulus as cutting the programme to zero was not discussed. Not only that, the central bank also announced it has changed the parameters of the what it would be allowed to buy, meaning it can now purchase government bonds yielding less than the -0.4% deposit rate ‘to the extent necessary’.
Initially the euro reacted well to the news that the ECB would be buying €60 billion of bonds a month form April onwards; however, Draghi’s comments suggesting that it could go beyond the new December 2017 deadline spooked the currency, sending it down 1.2% against the dollar and 1.1% against the pound. The Eurozone indices, on the other hand, enjoyed their pre-Christmas ECB boost, the DAX and CAC surging by 1.6% and 0.9% respectively.
The FTSE enjoyed the run-off goodwill generating by the ECB’s actions, ignoring sterling’s euro-gains to rise 0.4%. The Dow Jones, meanwhile, effectively did nothing after the bell – not that it mattered, the US index still managing to find its way to yet another all-time peak. As long as the Dow deals with next week’s Fed rate hike well, and it should given the amount of prior warning it has had, the index could well Santa-rally itself all the way to 20000 before the year is over.