Euro weaker, bonds surge as the ECB reintroduces QE
I’ll try to keep this short and concise. So, what was announced by the ECB today?
1. A 10 bps cut to the deposit facility rate
2. A rate tiering system
3. Change in forward guidance (dropped date-based forward guidance)
4. Reintroduction of QE (€20 billion per month) starting 1 November
So far, the initial market reaction is as what you would see with the euro weaker on the more or less “expected” stimulus package. The initial knee-jerk reaction was a move higher before a whipsaw back lower in the single currency.
On the balance of things, it is a dovish decision but I reckon the move lower in the euro could also be in part tied back to markets not having confidence that this is enough to bolster economic confidence and/or inflation expectations.
But we’ll see, there’s still Draghi’s press conference and time after that to let the dust settle before we get more clarity.
Elsewhere, equities are moving higher on the easing decision and the introduction of the rate tiering system is helping to lift bank stocks as well.
Meanwhile, bonds are loving the QE news as yields tumble across the board where we’re seeing even Italian 10-year bond yields hit a record lower of 0.77%. Treasury yields are much firmer across the board as well and that is putting a bid in the yen with USD/JPY falling to 107.70 levels currently.