ECB surprises with €1.1 Trillion QE

ECB surprises with €1.1 Trillion QE 1

European Central Bank (ECB) president Mario Draghi has announced an asset purchase programme that could total more than €1trn in an attempt to revive the eurozone’s flagging fortunes.

The central bank will begin a bond-buying programme in March, Draghi said today, purchasing €60bn of assets each month until the end of September 2016 or until inflation displays a sustained improvement.

The figure is at the higher end of investor expectations, and above the €50bn per month figure rumoured yesterday.

Significantly, the programme will encompass bonds ranging from two to 30 years in maturity. Asset purchases will be made by national central banks, with up to 20% of any losses being shared.


“Today’s measures will decisively underpin the firm anchoring of medium- to long-term inflation expectations,” Draghi said.

The ECB also revised the terms of its long-term refinancing operations (LTROs), with further details to be released later this afternoon.

The euro dropped more than 1% against the dollar in response, falling below $1.15 to a fresh 11-year low. The single currency also fell to a 7-year low against the pound at 75.9p.

European and UK stock markets rallied on the news, with the FTSE extending gains as Draghi began speaking and later climbing back towards the 6,800 mark, a rise of 1%. The EuroStoxx 50 stood up 1.4% at 3,315 by 15:30 GMT.

Elsewhere peripheral and core eurozone bonds rallied, with yields on benchmark Spanish debt falling to record lows as investors turned to the asset class once again.

Expectations of a QE announcement have been growing since last year. But the size of today’s package came as a surprise.
A poll of 176 investors conducted earlier this week by Société Générale revealed almost 70% expected the ECB to launch a QE programme of around €500bn.

Over the last few months Draghi (pictured) has continuously hinted at plans to launch QE, saying the bank is ready to take further monetary policy action to combat falling inflation and weaken the euro.

Figures published in December showed the eurozone fell into deflation at the end of 2014, adding to the region’s mounting problems and making QE more likely.

Screen Shot 2015-01-23 at 08.14.23

The eurozone also continues to battle with low economic growth, with the latest numbers suggesting the economy expanded by just 0.1% in the final quarter of 2014.

In October, the bank began purchasing asset-backed securities as the deflationary environment continued to intensify.

At the time, the announcement caused a rally in European stocks, especially banks, which were expected to benefit from covered bond purchases.

Some investors have already begun shifting allocations to Europe on expectations of a QE-fuelled rally.
Jupiter’s John Chatfeild-Roberts is among the many to have predicted last year that QE in Europe will boost equity prices in the region.

Original article at: Investment Weeks