Good morning. Despite figures being leaked and rumours swilling around the markets that Mario Draghi was going to introduce quantitative easing yesterday, there was still an element of surprise when it was finally announced.
Draghi introduced QE at a rate of €60bn per month, starting in March and carrying on until at least September 2016. This was above expectations and it could be claimed that the ECB have acted very cleverly here in not just managing over hyped expectations but exceeding them. There is a commitment of “whatever it takes” and the market has taken this positively for the time being. A guaranteed amount of €1140bn will be pumped into the markets and we have already seen the effects of this in the FX markets.
The initial market moves have been positive for the ECB as one of the main aims is to weaken the Euro which has happened, but whether this weakness continues will depend on the success of QE. This action has given the ECB time and shown that it is willing to deal a strong hand if necessary. The fallout will come if results aren’t forthcoming as effects on inflation and activity are likely to be slow and unspectacular.
We could also see the Euro take a further hit shortly as the Greek election takes place on Sunday. If opinion polls are to be believed, then we should see the opposition Syriza Party come into power. Of course, their first job is to try to renegotiate the terms of their bailout from the Eurozone. These are certainly interesting and testing times…
As with every other currency, the Pound has strengthened against the Euro and weakened against the US Dollar. Today, as we deal with the fallout from yesterday’s announcement we will also be looking at PMI from the Eurozone and the US, and UK retail sales which are not expected to be impressive.
Enjoy today and have a good weekend!
Posted in Daily Market News on Jan 23 2015