‘Public Sector Purchase Programme’ is fleshed out as markets continue rally

All eyes were on Cyprus this afternoon as Mario Draghi held a largely predictable, and mildly disappointing, ECB press conference.

Newly christened the ‘Public Sector Purchase Programme’, Draghi confirmed QE will comprise of monthly bond buying, beginning on March 9th until September 2016, at a rate of €60 billion a month, with the option that if inflation isn’t approaching the targeted 2% the stimulus could continue. Draghi also revised Eurozone GDP for 2015 to 1.5% from 1.0%, with similar upward revisions for 2016 and 2017; it was a difference story for inflation, which was revised down to 0% from the original estimate of 0.7% for 2015, but with faster growth in 2016 and 2017. There were comments that recovery will be ‘dampened’ by slow reform implementation and ‘balance sheet adjustments’ and that Greek and Cypriot are excluded from the asset purchase scheme because the ECB cannot buy the bonds of countries under reform programmes. Draghi also refused to be full drawn out on the Greek issue, merely stating that the most important thing the Eurozone can do is preserve Greek bank solvency.

All in all the conference held very few surprises and this was reflected on the markets; whilst the Eurozone indices didn’t lose their morning gains, neither did they explode and build on the growth they had seen before the conference began. It appears that the very existence of the ECB conference this afternoon did more for the markets than its content. What did proceed as expected was the demise of the euro; the currency hit even fresher 11 year lows during Draghi’s conference, and can expect to lose more once the bond buying begins next week.

Over in the UK, the decision by the BoE to keep interest rates the same summed up the lack of home-grown data the FTSE had to deal with; instead, the UK index continued the rally that began this morning, gradually approaching Monday’s intraday highs. This was despite significant declines by KAZ Minerals and Rio Tinto, as well as new losses for HSBC and Allied Minds.

The US markets weren’t as robust as their counterparts in Europe, as once again the country’s data stumbled in and spoilt the party. Unemployment claims grew for the second week in a row, and the third figure higher than 300k in 4 weeks. On top of this factory orders missed targets and continued their negative trend, whilst the revised non-farm productivity continued to slump. This news hampered the gains the US markets had made on the back of the ECB conference, and suggest a worrying jobs trend before the all-important non-farm figures tomorrow.