Barring some kind of truly epic screw up at the presser, it does indeed appear that Mario Draghi managed to thread the proverbial needle.
The ECB will pare asset purchases starting in January and the “well past” language in the forward guidance on rates effectively means a hike is off the table until 2019, if you go ahead and assume that next September, they’ll extent the APP through the end of the year (probably with an accompanying further reduction of the monthly pace).
The euro fell on the news as it was immediately apparent from the statement (i.e. even an algo could understand it) that it was as dovish as it could have been considering it included the taper announcement.
Clearly, that was a boon for European equities, which rose immediately:
This echoes what we suggested would be the likely outcome on Sunday:
If you’re looking for market turmoil around this announcement you’ll probably be disappointed. Draghi will thread the needle. He always does. Sure, the program itself is absurd and CSPP has created all manner of ridiculous distortions (see € HY for example), but once you accept that the whole thing is ludicrous on its face, Draghi has become a master of getting the messaging “right.” Maybe this time is different, but we doubt it. Over the longer-term, there are obviously questions as to what the taper will mean in terms of putting more of the onus on the market when it comes to filling the gap left by the taper, but that’s more an existential question about what happens in the post-QE era. Actually testing Draghi while the program is still in place is a dangerous game to play.
For those interested, here’s a compilation of analyst reactions so far as gathered up and presented by Bloomberg:
Allan von Mehren, head of international macro at Danske Bank, says by phone:
