As we speculated ahead of the ECB meeting, the council decided to leave eurozone interest rates unchanged on Thursday. The market met this news with indifference. The euro rallied modestly against the US dollar, European bond yields remained unchanged, and the EuroStoxx index of the top 50 European companies rose slightly. In the press conference afterwards the first question was fairly obvious, what circumstances would you consider using these unconventional measures that get talked about so often? Mario Draghi described the council meeting as full and rich, and that QE formed part of the discussion, but he succeeded like all good politicians by not answering the question. Most of the following questions focused on the latest inflation data, in an attempt to illicit from the ECB chairman when and if the ECB might act. For an Italian he played a very straight bat.
To once again go back to Wolfgang Munchau it was more “talk talk” and no hint of action. The answers involved using the phrases, quantitative easing, lower interest rates and stressing the unity of the council as often as possible. To us it would have been surprising if he and the council had not discussed these points. The ECB chairman appears more uncomfortable in his seat as each press meeting goes by.
He did go on to point out that introducing QE into the American economy is far easier than it is in the eurozone. Any quantitative easing policy for the eurozone, in his words “has to be carefully designed”. This was probably his most enlightening comment, in answering the question, for the first time he pointed out that apart from any political difficulties there might be; there are practical ones as well. One assumes there are no practical obstructions to cut interest rates further, so one has to assume political factors are playing a part as well.
The Japanese yen continues to weaken against the US dollar; the next rate Bank of Japan rate decision announcement takes place on Tuesday the 8th April. Time will tell if we get a slightly different outcome from that meeting. That date coincides with the announcement of Alcoa’s results, the lead off to the US company reporting season.