European markets are poised for a relatively flat end to the week, rather accurately reflecting investors’ mood after Draghi unusually left them feeling disappointed.
It’s not often that the ECB President is criticised for not being dovish enough but that appears to have been the key takeaway from the meeting. The statement which accompanied the rate announcement got traders very excited, in particular the reference to exploring all non-conventional stimulus options, but that enthusiasm soon petered out.
Draghi’s claim that an interest rate cut was not even discussed at the meeting was the real kicker, traders had been banking on a September cut and had even attached a high probability to the bank pulling the trigger yesterday. Ultimately, I don’t think this is a big deal, a 10 basis point cut would do very little anyway and would be largely symbolic
What seems to have disappointed traders most is the belief that this could be a sign of things to come from the Fed, with the central bank also not having a sense of urgency when it comes to reversing some of the tightening. Quite frankly, the fact that traders were more convinced by Draghi that there’s not going to be a 50 basis point cut next week than the Fed’s most dovish voter repeatedly saying 25 is sufficient is bizarre.
It’s all a little quieter today but the week isn’t quite over yet, with US GDP attracting lots of attention at a time when everyone is doom and gloom about the economic outlook. I almost feel that after the last 24 hours, traders will be more satisfied with a poor reading that supports the need for more aggressive cutting than a good one that suggests it’s not needed.
