Prudent and patience remains the theme
The big news out of the European Central Bank (ECB) so far this morning is that it is keeping the window open for more QE.
The ECB said it "could increase QE in size, duration if the outlook worsens," when many expected that language to be removed from its statement.
Press Comments:
Draghi
- Information Confirms Strengthening Econ Expansion
- Risks to Growth Outlook Broadly Balanced
- Economic Expansion Not Yet Translated to Stronger Inflation
- Headline Inflation Dampened by Energy
- Underlying Inflation Still Subdued
- Very Substantial Degree of Accommodation Still Needed
- Stand Ready to Increase Asset Purchases If Needed
- Data Point to Solid Broad-Based Growth in Period Ahead
- Private Consumption Supported by Employment Gains
- Global Recovery Should Support Exports
- Growth Prospects Dampened by Slow Pace of Structural Reforms
- Current Positive Momentum Increases Chances of Stronger Upswing
- Downside Risks Primarily from Global Factors Still Exist
- Headline Inflation at Current Levels in Coming Months
- Measures of Underlying Inflation Still Low
- Private Sector Loan Recovery Is Proceeding
- Pass Through of Policy Measures Support Borrowing Conditions
- Need Substantial Step Up of Structural Reforms
- No Convincing Sign of Pick Up in Underlying Inflation
- We Need to Be Persistent and Patient, ‘We Aren’t There Yet’
- We Were Unanimous in Communicating No Change to Guidance
- We Were Unanimous in Setting No Precise Date on When to Discuss Changes
- Our Discussions Should Take Place in the Autumn
- Financing Conditions Broadly Supportive for Achieving Inflation Goal
- Re-pricing of Exchange Rates Has Received Some Attention
- We Are Confident It Will Get There, But It’s Not There Yet
- Will Stay in Market for Long Time
- Serious Progress in Greece in Last Several Months
Net result: The market does not see Mario Draghi as "dovish" enough in the press conference, which is sending the EUR higher – last trades up +0.4% versus the U.S. dollar at €1.1561
Draghi is now expected to use the Jackson Hole Federal Reserve conference in August (24-26) to prepare the ground for a bond-buying program tapering announcement in September. Why? The ECB wants to keep the market guessing for another month so that it could manage expectations better.
