Mario Draghi duly delivered on his promise to add further stimulus to the eurozone economy. Late on Wednesday, ahead of the meeting, rumors circulated that the asset purchase program would be 50 bn euros a month, as it turned out the ECB plan to buy 60bn euros a month starting in March this year and expected to carry on until September 2016. It seems the ECB played the old under promise and over deliver trick. Purchases will include government debt; asset backed securities and covered bonds but not corporate bonds. Equity markets across the world were buoyed by the news; bond yields in Europe fell modestly, as did the euro, not unsurprisingly.
There is not much one can add, there are bound to be those who will protest that yields are already so low in Europe what additional difference can these purchases make. There were many protests when the Federal Reserve embarked upon this road, in the end it appeared to do little for inflation but did seem to play a part in stimulating the economy.
Ultimately it’s about sentiment, the belief that 60bn euros will be entering the monetary system should boost confidence as the additional money looks for a home. The Stoxx Europe 600 index has rallied nearly 10% from the lows of a week or so ago, and is now up 6% on the year. A pause for breath may be in order, as investors will now focus on the Greek elections taking place on Sunday.
This year is beginning to feel a little like last year, and to paraphrase Henry Wordsworth and the little girl, when the market is good it feels very good, but when its bad its horrid.