Stocks swoon as Draghi fails to walk back ECB message

Summary:

  • Dax drops sharply after ECB and Draghi

  • Draghi says no risk of deflation and fails to pander to rate cuts

  • US stocks open little changed after 2 days of gains

 

ECB President Draghi has failed to significantly walk back on the message delivered in the earlier rate decision, with stocks extending their slide and the Euro rallying above the $1.13 handle. The German Dax is often one of the most sensitive markets over ECB decisions and today proved no different with the benchmark falling 170 ticks from high to low as investors became skittish at the absence of an overly dovish message from the Governing Council. The terms of the TLTRO has been priced at the deposit facility rate +10 bps which is towards the high end of estimates and the terms are not as favourable as they could have been.  

The German Dax swooned after the ECB decision and continued lower as Draghi conducted his press conference. Source: xStation

 

During the Draghi press, the President made the following comments:     

 
  • Uncertainty about global trade has increased since March

  • Data about the economy are not bad

  • There isn’t substantial worsening in the outlook, that’s why the extension is for 7 months

  • Decision today was unanimous

  • Members raised the possibility of rate cuts, APP restart and further extension in forward guidance

 

The final comment is as far as Draghi went in paving the way for rate cuts, and this has clearly disappointed some who were hoping for a more explicit suggestion of policy loosening. He also mentioned that there is no risk of deflation and a very small risk of recession.

US stocks have enjoyed a strong move higher in the past couple of sessions, but the drop in the Dax could be seen as a warning sign for Wall Street bulls. 2842 possible resistance. Source: xStation

 

 

 

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