Hopes and expectations turned to despair for financial markets today, as Mario Draghi failed to live up to the sizeable expectations resulting from his continuous dovish rhetoric since the October meeting. EUR/USD had lost over 800 points since the October meeting, yet today we saw almost half of that recovered over the course of an hour.
Mario Draghi implemented two of the three measures markets were looking out for, yet the decision to leave asset purchases at €60 billion per month signalled a somewhat conservative approach that seemed to contradict his ‘whatever it takes’ mantra.
With European markets flushing lower, it is clear December is not playing out according to the script, where bullish sentiment driven by ECB easing counterbalances the impact of a hike from the Fed. If markets are in freefall in the lead up to a Fed rate hike, there is a good chance we could see one of the worst Decembers for many years. With this in mind, today could mark the emergence of the next excuse from the Fed, who would loathe to hike in the face of plunging markets.
Crude oil is selling off once more ahead of tomorrow’s OPEC meeting which represents the latest chance for Saudi to boost prices by cutting output. There is no doubt the Saudi strategy to damage the US shale industry has hurt OPEC members hugely too, yet with US production only just starting to drop, it seems an unlikely time for the strategy to be abandoned. Rumours that pre-meeting discussions have failed to draw any consensus are to be expected given the unlikeliness of Saudi to agree to any production cut before US output tumbles.