Will Fed and BOJ follow the ECB’s lead in giving markets more loose monetary policy?
ECB Cuts All Three Rates and Increases QE by €20 Billion a Month
The European Central Bank announced this morning that they would cut all three of the benchmark (to zero), marginal lending (also to zero) and deposit rates (to -.4%); along with a larger than expected increase to the bank’s monthly bond purchases by €20 Billion per month. This brings the monthly tally of ECB bond purchases to €80 Billion per month, and the bank also announced that they would buy non-bank corporate debt as part of their asset purchases. The new policies and updated rates go into effect on March 16th.
The immediate impact on the Euro has been significant weakness. EUR/USD is off by over 150 pips from the pre-release high, and EUR/JPY has moved lower by over 100 pips. The immediate impact for stocks has been positive, as most European indices have caught a strong bid after this announcement. The Euro is continuing to move lower with aggressive price action as we approach the press conference at 8:30 AM ET.
We had discussed some of these setups and scenarios yesterday in the article, EUR/USD, Euro Stocks Primed for ECB: Will Draghi Deliver? The chart below shows the DAX, and as we can see from this Daily setup, this news has been warmly received by equity markets:
