Markets digest ECB QE

Heading into the close the FTSE 100 is 60 points higher, as markets digest the impact of European Central Bank quantitative easing.

Euro notes
Source: Bloomberg

UK equity markets rise after ECB news

If ever the term ‘fog of war’ could be applied to financial markets, today would be a time to use it. It is true that the ECB has announced QE, and in larger monthly quantities than yesterday’s rumours suggested. However the announcement was a classic ECB fudge, with so much detail about risk sharing and inclusion of other purchasing operations that it will take time for the full implications to become clear. Even the length of the programme is not clear, with a caveat about continuing until inflation is closer to the target rate, although this is a prudent move on Mario Draghi’s part, ensuring that he has freedom to manoeuvre should more QE be needed.

Although not unanimous, there appears to have been enough support for the decision that no vote was needed, another little detail that provided equity markets with an excuse to move higher. Overall, the ECB has got away with it today, but with Greek elections looming there is still a big risk that the European rally in stock markets has run its course for now. 

Verizon losses weigh on telecoms

US markets were less impressed with the announcement, having been quite blasé about the whole thing for the past two weeks, initially failing to be infected with the same wild optimism seen in Europe. However, having risen by over 2% since last week’s lows, there are signs that Wall Street is taking comfort from earnings season and will drag itself higher thanks to the confluence of company news and the ECB.

Verizon’s losses haven’t helped the telecoms sector and American Express shares are in retreat too, while a slightly poorer figure on jobless claims stunted the gains for a time. The tremors from the ECB have yet to be fully felt across the Atlantic, but at least the central bank is finally getting its act together, even if it may be too little, too late.

Precious metals return to yesterday's highs

Gold and silver at least were appropriately enthused by the ECB news, recovering their morning losses and moving back to the highs seen yesterday. Talk of QE-revived buying in these metals and the apparent delivery of the goods by Mr Draghi have given renewed impetus to the upward move. After months in which the Federal Reserve’s shift towards a more hawkish posture dominated the situation, the ECB’s conversion to the cause of monetary easing has given new hope to gold buyers. 

EUR/USD hits lowest levels since 2003

Despite being one of the most well-trailed announcements in recent months, the ECB news sent EUR/USD to its lowest level since November 2003, pushing below $1.15. It was under similar pressure against the pound, as the ECB outplayed the BoE’s move back to a dovish setting yesterday by unleashing QE. The Germans may complain, but Mr Draghi is firmly in the driving seat, which suggests we haven’t seen the end of the euro’s decline just yet.  

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