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Expectations were high, but our call was right that Mario Draghi and the ECB’s governing council would remain in “assessment” mode today (no rate cut or QE announcement); our “counter-TREND” call proved correct with the EUR/USD bouncing higher and equities falling on Draghi’s decision.

Below are key take-aways from today’s press conference:

  • Draghi pushes out prospect of sovereign QE until Q1 2015 after an  assessment of concurrent programs (ABS, covered Bond, TLTRO) and economic outlook
  • Draghi gave much importance to the impact of oil on the deflationary trend in Eurozone CPI. He all but explicitly said should oil prices remain subdued, it will be necessary for the ECB to act in a big way #Sovereign QE
  • No Surprise: Eurozone economic and inflation outlook revised downward by ECB #EuropeSlowing
  • ECB cuts GDP forecasts to 0.8% in 2014 (vs 0.9% projection in September), 1.0% in 2015 (vs 1.6%) and 1.5% in 2016 (vs 1.9%)
  • ECB cuts inflation forecasts to 0.5% this year (vs 0.6%), 0.7% next year (vs 1.1%), and 1.3% in 2016 (vs 1.4%)
  • Draghi says "We don't need unanimity to proceed with QE"
  • Draghi says QE has been shown to be effective in the US and in the UK; in Japan it's more complicated #TheEurozoneIsComplicated
  • On push back from Germany on QE... Draghi says the ECB will comply with its mandate for price stability #NoAnswer

Our read through remains that Draghi is effectively telling us that everything he's tried so far hasn't worked, including his explicit Policy To Inflate that is only resulting in more #deflation. We’ll continue to stick to our playbook #EuropeSlowing, and manage risk (and price levels) created by the heavy hand of central bank intervention.

Matthew Hedrick

Associate

Draghi Didn’t Deliver the “Drugs”! - vv.  eur uuussd