Mario Draghi masterstroke on the financial markets – Les Echos

Mario Draghi masterstroke on the financial markets – Les Echos

The ECB has managed not to disappoint investors. Bond yields reach new low poins

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For the financial markets, it is faultless. In announcing its buyback plan assets, Mario Draghi, the president of the German Central Bank, went beyond the expectations of investors. “The surprise was the size of the plan that is still twice the intended size. There is talk of QE will represent 8-9% of euro area GDP. For a first tranche is a credible operation, while QE in the US or the UK totaled up to 20% of GDP “, appreciates Franck Dixmier, Allianz GI. “We must keep in mind the fact that the ECB has set a goal – to reduce the size of its balance sheet at March 2012 (3 trillion which requires an expansion of at least 1 trillion) – and that it has to provide the means to achieve it, “said Samy Chaar, Lombard Odier.

Faultless too soon yesterday by announcing the details of its program “QE”, but also by preventing the purchases, led to the end of September 2016 will be extended “until we noticed a lasting adjustment of the inflation trajectory conforms to our goal of achieving rates inflation below but close to 2% over the medium term. ” Franck Dixmier, “It offers more flexibility compared to a program that was closed. This is great news. ” Gero Jung at Mirabaud AM “program size and the fact that it is not limited in time are now the most important data for investors that the question of the division of risk between countries” and emphasizes Gero Jung at Mirabaud AM. Adding, “It is important for the ECB, it is the medium-term inflation expectations. Now the 5-year swap rate in 5 years expects inflation to 1.70% in 5 years against 1.5% a couple of weeks. It is already a positive move, “even if it is s till below its medium-term target of 2% inflation in the euro area.

The art of communication

Above all, Mario Draghi has perfectly mastered the communication exercise in in markets, avoiding short term the biggest risk in the markets: disappointment. “It’s fascinating to see the ability to Mario Draghi to surprise the financial markets even as expectations are high,” admits Franck Dixmier. “The ECB had no room for error because the expectations were huge,” responded by saying Gero Jung. In Paris, the CAC 40 in Paris the CAC 40 was left with a gain of 7.3% in 8 days. Euro Stoxx 7.5%. “Given the lack of expected efficacy of the” QE “if it is to create a dynamic, it had to be surprising,” says Vincent Juvyns, JP Morgan AM.

The market was also so surprised yesterday, at one point he did not seem to know which way to turn. Shortly before 15 am, the CAC 40 index has gone from an increase of 1.4% to a slight decline before resuming its ascent. “We must remember that the expectations were very high. The reaction, somewhat equivocal markets, is understandable, “says Samy Chaar, Lombard Odier. Stocks ended this historic day for the ECB on a beautiful rise. The CAC 40 gained 1.52% to 4552 points. Frankfurt has reached a new record after a gain of 1.32%

But the main reaction is to the credit of the bond markets. The rate on ten-year French, Spanish and Italian yesterday hit new lows. The French OAT has thus fallen in session at least 0.60%, when the German rate was worth 0.444%. The Spanish 10-year fell below 1.4%, while the Portuguese rate fell 19 basis points to 2.556%.

Imbalance in bond markets

For Vincent Juvyns “QE will create a distortion in the bond market,” while there is already a significant imbalance with demand for bonds well above the offer. Today, all investors have trouble finding paper and the massive arrival of the ECB risks creating a scarcity of the resource. ” Franck Dixmier however welcomes the decision of the ECB to exclude business credit the asset purchase program: “This is very important because, in itself, the business credit industry will benefit from the research performance of the investors. But this will prevent them especially to have in front of them an actor like the ECB will take all credible assets “.

But already warns Johannes Müller at Deutsche AWM if today’s decision by the ECB “goes beyond market expectations. After the initial excitement passed, it will be necessary to keep a cool head and to prevent speculation in recent days. The ECB’s repurchase program will be neither a panacea nor a poison. His lasting positive impact should come from the devaluation of the euro, even though as a whole, its impact will be limited. ” This is also the feeling of Vincent Juvyns “EQ can improve the feeling, but do not get carried away. Basically, it is not this that will push up European markets, but other factors such as the decline of the euro, the reforms that are taking place, including in France with the Act or Italy Macron with ads Mateo Renzi. And businesses remake of earnings growth since the second quarter. Finally there is real leadership with the new commission set up late last year “and has set up an invest ment plan of billions of euros. “I think we should wait to Brussels and Frankfurt for the future of the eurozone.”

Historical Date for the ECB

In the meantime, on January 22 will remain as a key date in the history of the ECB, as well as July 26, 2012, when Mario Draghi gave his famous “whatever it takes” about the rescue of the euro zone. “In a few weeks, there is a changing environment (policy mix) of the much more favorable euro area. There is a relaxation of fiscal discipline at the commission. There is an even more aggressive monetary policy, which will allow a further decline of the euro and even lower rates. And in a context of low oil prices, we have a combination of factors that make us more positive for growth in the euro area in 2015 “.