€60 billion a month QE prompts predictable reaction from markets

Draghi finally delivered, and yesterday’s rumours proved to be very close to the truth.

After an initial teasing announcement that saw no change in key rates and no QE reveal, Draghi finally confirmed that QE will begin in the Eurozone from March, with asset buying of €60 billion a month until September 2016 (or until a ‘sustained adjustment in the path of inflation’ is achieved). After reports ‘somehow’ got out to news sites that the ECB was to implement €50 billion a month QE, today’s announcement was both unsurprisingly, and seemingly calculated to provide a superficially better figure than the markets were expecting.

In the immediate aftermath the markets were like an over-excited child, with the euro and Eurozone indices especially whipping up and down as Draghi’s speech continued. However, when the dust had settled, things progressed much as expected, with the EUR/USD hitting new lows of 1.146 whilst the indices posted gains, however modest. Yet the Eurozone isn’t out of the woods yet, and with the potential for a majorly disruptive result from the Greek election on Sunday, and an uncertain Italian presidential race next Thursday, the region has a long way to go before it can secure any long-term stability.

With gold just as nervy as the euro this morning, it had begun to fall further away from the psychologically significant $1300 per ounce mark; however, post-Draghi’s decision, the metal settled back into creeping towards this mentally important level.

Whilst the Eurozone was the focus, the FTSE benefited from the QE decision that should, in theory, introduce some semblance of stability to its continental cousins. After a growing public sector borrowing dented the index’s gains, the FTSE’s continued rally was shored up by the confirmation of QE, even if these gains weren’t as high as the index’s pre-announcement progress.

Brent Crude managed to continue its rebound towards $50 per barrel; the commodity wasn’t left out by Draghi, who said low oil will help both individual households and the overall economic recovery. Not exactly the news oil would want to here, but it may at least allow its stability to continue; however, with US crude oil inventories moved to this afternoon the commodity still has to deal with the most consistent thorn in its side.

Finally, better than expected unemployment claim figures combined with the long-awaited confirmation of Eurozone quantitative easing meant the US markets could continue the rebound they began on Wednesday. If the Dow Jones can weather the US flash manufacturing PMI tomorrow, then it may be able to end the week by regaining much of the losses it suffered in mid-January.