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Euro falls as ECB halve stimulus programme to €30bn per month - business live ECB halves stimulus programme; UK suffers falling retail sales and car production - as it happened
(35 minutes later)
3.53pm BST
15:53
Afternoon summary
Crumbs, what a busy day. Here’s a quick recap of the main events.
The European Central Bank has halved its asset purchase stimulus programme, to €30bn per month, for another nine months. But the ECB also left little doubt that it intends to keep buying bonds for even longer than announced today, in an attempt to get inflation.
The euro has fallen following the announcement.
In the UK, a gloomy retail report has raised new fears over the strength of the recovery. The CBI reported that retail sales were falling at the fastest pace since 2009 this month.
Economists say the survey shows that consumers are being forced to cut back, due to rising inflation and economic uncertainty.
Britain’s car industry is also struggling. Production fell by 4% in September, mainly due to a sharp decline in domestic demand.
Barclays is having its worst day since the day after the EU referendum. Shares are down by 7.5% today, after it reported a decline in earnings at its investment banking arm.
And Britain’s pay gap has also narrowed, to 9.1%. But it’s not shrinking fast enough, with experts warning it will take ‘decades’ to eliminate at the current rate...
That’s probably all for today. Thanks for reading and commenting. GW
3.31pm BST
15:31
ECB announcement: What the experts say
Ian Stewart, chief economist at Deloitte, has a good take on Mario Draghi’s comments:
“This is softly, softly tapering. William McChesney Martin, a previous Fed Chairman, once said that the job of the Fed was ‘to take away the punchbowl just as the party gets going.’
The ECB certainly isn’t taking away the punchbowl, Mr Draghi is saying that so long everyone keeps having a good time they plan to put less punch in.”
Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, says:
“Ten years on from the financial crash, the era of quantitative easing is yet to run its course in Europe. Draghi confirmed that the bond buying programme would be tapered, but it has hardly come to an end.
This slow, steady and widely predicted approach hopes to rein in the Euro from rising further, which is limiting the earnings capacity of European exporters, at the same time as avoiding a European taper tantrum in the markets. Whether one can be achieved without the other remains to be seen.
Paul Rayner, Head of Government Bonds at Royal London Asset Management, agrees that the European Central Bank’s QE programme will continue for some time:
In our view, the tightening of European monetary policy will continue be a very gradual process, with further comments made today that there are no plans for a cliff-edge end to the bond purchase programme.
As Mario Draghi himself put it during today’s press conference, the reinvestment of principal payments will be ‘massive’, and it’s worth remembering that despite the squeeze on liquidity entering the markets, the ECB will still be buying €30 billion per month.
Viktor Nossek, Director of Research at asset management firm WisdomTree, predicts that bond prices could suffer from the ECB’s decision:
“Investors in Europe should consider hedging their fixed income exposures, now that the ECB is cutting back asset purchases from the start of 2018.
“German bunds could now be in the firing line, as the cut back could spark a taper tantrum in Europe.
Updated
at 3.51pm BST
3.14pm BST3.14pm BST
15:1415:14
Euro hits three-week lowEuro hits three-week low
Mario Draghi has done a good job of talking down the euro too.Mario Draghi has done a good job of talking down the euro too.
The single currency has now shed one cent against the US dollar to $1.172, a three-week low.The single currency has now shed one cent against the US dollar to $1.172, a three-week low.
Traders have clearly got the message that the ECB’s bond-buying programme remains ‘open-ended’, and that it has not intention of raising interest rates any time soon.Traders have clearly got the message that the ECB’s bond-buying programme remains ‘open-ended’, and that it has not intention of raising interest rates any time soon.
#Euro extends losses following #ECB meeting. pic.twitter.com/WxOAOWKutK#Euro extends losses following #ECB meeting. pic.twitter.com/WxOAOWKutK
3.01pm BST3.01pm BST
15:0115:01
Draghi's press conference: The key pointsDraghi's press conference: The key points
That was a pretty dovish performance from Mario Draghi. An effective performance too, as the ECB president makes it clear that he expects maintain loose monetary policy for some time, despite the economic recovery.That was a pretty dovish performance from Mario Draghi. An effective performance too, as the ECB president makes it clear that he expects maintain loose monetary policy for some time, despite the economic recovery.
Here are the key points:Here are the key points:
1) The European Central Bank has halved the pace of its bond-buying asset purchase programme. From January, it will only buy €30bn of government and corporate bonds each month, down from €60bn, for at least the next nine months.1) The European Central Bank has halved the pace of its bond-buying asset purchase programme. From January, it will only buy €30bn of government and corporate bonds each month, down from €60bn, for at least the next nine months.
2) But..... this doesn’t mean that the ECB’s QE programme is on borrowed time. President Draghi has insisted that today’s decision is not ‘tapering’, meaning the Bank expects to keep buying bonds beyond September 2018.2) But..... this doesn’t mean that the ECB’s QE programme is on borrowed time. President Draghi has insisted that today’s decision is not ‘tapering’, meaning the Bank expects to keep buying bonds beyond September 2018.
This was perhaps the key quote:This was perhaps the key quote:
The decision today is for an open-ended programme ... it’s not going to stop suddenly. The large majority of the Governing Council expresses a preference for keeping it open-ended.The decision today is for an open-ended programme ... it’s not going to stop suddenly. The large majority of the Governing Council expresses a preference for keeping it open-ended.
There is still a large amount of uncertainty, so it was only prudent.There is still a large amount of uncertainty, so it was only prudent.
So while the ECB has taken a step towards ending its ultra-loose monetary stance, we’re not there yet....So while the ECB has taken a step towards ending its ultra-loose monetary stance, we’re not there yet....
#ECB Draghi presser ends as it has begun: w/ dovish tone. Says reduction in monthly purchases is not tapering.#ECB Draghi presser ends as it has begun: w/ dovish tone. Says reduction in monthly purchases is not tapering.
3) Draghi was upbeat about the recovery in the eurozone recovery, pointing out (twice) that seven million jobs have been created in the last four years.3) Draghi was upbeat about the recovery in the eurozone recovery, pointing out (twice) that seven million jobs have been created in the last four years.
He declared that:He declared that:
“The latest data and survey results point to unabated growth momentum in the second half of this year.”“The latest data and survey results point to unabated growth momentum in the second half of this year.”
Today’s governing council was held in a positive atmosphere, he added.Today’s governing council was held in a positive atmosphere, he added.
All the members mentioned growth momentum, improving employment ...investment is actually picking up. The earning capacity of households is picking up, so disposable income is increasing.All the members mentioned growth momentum, improving employment ...investment is actually picking up. The earning capacity of households is picking up, so disposable income is increasing.
4) But the ECB still sees ‘muted’ inflation pressures. That’s why it intends to keep pumping euros into the economy through its asset purchase scheme.4) But the ECB still sees ‘muted’ inflation pressures. That’s why it intends to keep pumping euros into the economy through its asset purchase scheme.
“Domestic price pressures are still muted overall and theeconomic outlook and the path of inflation remain conditional oncontinued support from monetary policy. Therefore, an ampledegree of monetary stimulus remains necessary.”“Domestic price pressures are still muted overall and theeconomic outlook and the path of inflation remain conditional oncontinued support from monetary policy. Therefore, an ampledegree of monetary stimulus remains necessary.”
5) On geopolitics, Draghi said the ECB was watching developments in Catalonia very closely.5) On geopolitics, Draghi said the ECB was watching developments in Catalonia very closely.
“It is very difficult to comment on developments that change every day. We are following what is happening ... to conclude now that there will be instability is premature.”“It is very difficult to comment on developments that change every day. We are following what is happening ... to conclude now that there will be instability is premature.”
2.35pm BST2.35pm BST
14:3514:35
Q: Last year, when the ECB cut QE from €80bn to €60bn per month, you insisted that you weren’t ‘tapering’ your bond buying programme. So is today’s announcement tapering?Q: Last year, when the ECB cut QE from €80bn to €60bn per month, you insisted that you weren’t ‘tapering’ your bond buying programme. So is today’s announcement tapering?
No, Draghi replies. That underlines how the programme is likely to keep running beyond next September (but possibly at a lower rate than €30bn per month).No, Draghi replies. That underlines how the programme is likely to keep running beyond next September (but possibly at a lower rate than €30bn per month).
And that’s the end of the press conference.And that’s the end of the press conference.
2.30pm BST2.30pm BST
14:3014:30
Draghi’s insistence that QE is ‘open-ended’ is fuelling speculation that the ECB could keep buying government bonds until 2019.Draghi’s insistence that QE is ‘open-ended’ is fuelling speculation that the ECB could keep buying government bonds until 2019.
And that would mean interest rates could remain at their current record lows until 2020!And that would mean interest rates could remain at their current record lows until 2020!
The chances of #Draghi leaving the #ECB (=> October 2019) without hiking rates once have gone up dramatically today.The chances of #Draghi leaving the #ECB (=> October 2019) without hiking rates once have gone up dramatically today.
#Draghi: QE is not going to stop suddenly =>net asset purchases will go on beyond September 2018 => first rate hike Q2 2019 at the earliest?#Draghi: QE is not going to stop suddenly =>net asset purchases will go on beyond September 2018 => first rate hike Q2 2019 at the earliest?
2.27pm BST2.27pm BST
14:2714:27
Q: If the eurozone recovery turns out to be stronger than you expect, might you reduce the pace of the asset purchase scheme?Q: If the eurozone recovery turns out to be stronger than you expect, might you reduce the pace of the asset purchase scheme?
This is today’s decision, Draghi shoots back, adding “This is our commitment, we don’t foresee changes now.”This is today’s decision, Draghi shoots back, adding “This is our commitment, we don’t foresee changes now.”
Q: what about if economy becomes more favorable?Draghi: this is today's decision.Q: what about if economy becomes more favorable?Draghi: this is today's decision.
2.24pm BST2.24pm BST
14:2414:24
Q: The US Federal Reserve raised interest rates 15 months after ending its bond-purchase programme - might the ECB take a similar approach?Q: The US Federal Reserve raised interest rates 15 months after ending its bond-purchase programme - might the ECB take a similar approach?
We don’t have a fixed timeframe, Draghi replies. Comparisons with other jurisdictions aren’t really appropriate.We don’t have a fixed timeframe, Draghi replies. Comparisons with other jurisdictions aren’t really appropriate.
2.21pm BST2.21pm BST
14:2114:21
Q: What might happen to the ECB’s stimulus programme after September 2018?Q: What might happen to the ECB’s stimulus programme after September 2018?
Mario Draghi says the programme is “open-ended”, meaning it won’t suddenly stop buying bonds next October.Mario Draghi says the programme is “open-ended”, meaning it won’t suddenly stop buying bonds next October.
That will probably reassure the markets, who have developed a taste for very loose monetary policy and don’t want the ECB’s punch bowl to run dry.That will probably reassure the markets, who have developed a taste for very loose monetary policy and don’t want the ECB’s punch bowl to run dry.
Draghi says the magic word: QE is still "open ended." And when and if it ends, "it's not going to stop suddenly"Draghi says the magic word: QE is still "open ended." And when and if it ends, "it's not going to stop suddenly"
#Draghi's significant statement: also in September 2018 the program will not end abruptly, so he says the purchases will continue after then#Draghi's significant statement: also in September 2018 the program will not end abruptly, so he says the purchases will continue after then
2.18pm BST2.18pm BST
14:1814:18
Draghi: We're watching Catalonia independence very closelyDraghi: We're watching Catalonia independence very closely
Q: Is political uncertainty in Catalonia a risk to financial stability in Spain, and in the euro area at a whole?Q: Is political uncertainty in Catalonia a risk to financial stability in Spain, and in the euro area at a whole?
Mario Draghi says the ECB is following developments with “great attention”, but it is “very difficult to comment on developments that change every day”.Mario Draghi says the ECB is following developments with “great attention”, but it is “very difficult to comment on developments that change every day”.
To conclude now that there will be financial stability risks would be premature. We have to see what will happen....To conclude now that there will be financial stability risks would be premature. We have to see what will happen....
2.15pm BST2.15pm BST
14:1514:15
Q: Why has the ECB decided to keep expanding its asset purchase programme, at a time when the US Federal Reserve is cutting its own QE scheme?Q: Why has the ECB decided to keep expanding its asset purchase programme, at a time when the US Federal Reserve is cutting its own QE scheme?
Draghi doesn’t accept the suggestion that the ECB is wrong to keep buying bonds.Draghi doesn’t accept the suggestion that the ECB is wrong to keep buying bonds.
The US recovery is “way more advanced” than in the eurozone, meaning Europe’s inflation outlook is “way behind”, he says firmly.The US recovery is “way more advanced” than in the eurozone, meaning Europe’s inflation outlook is “way behind”, he says firmly.
2.08pm BST2.08pm BST
14:0814:08
Some reaction to Draghi’s comments:Some reaction to Draghi’s comments:
'communication has been pretty effective' - Draghi pic.twitter.com/4HTgkZ8P6N'communication has been pretty effective' - Draghi pic.twitter.com/4HTgkZ8P6N
#ECB decision not unanimous. Not a surprise. I guess some have issue with length and open-ended. Majority went for open-ended, so not all!!#ECB decision not unanimous. Not a surprise. I guess some have issue with length and open-ended. Majority went for open-ended, so not all!!
2.07pm BST2.07pm BST
14:0714:07
QE decision was not unanimousQE decision was not unanimous
Q: Was today’s decision unanimous?Q: Was today’s decision unanimous?
No, there were different viewpoints, Draghi replies.No, there were different viewpoints, Draghi replies.
He says there was a “broad consensus on several issues, and a large majority on other issues.”He says there was a “broad consensus on several issues, and a large majority on other issues.”
2.05pm BST2.05pm BST
14:0514:05
Q: How did the ECB go about preparing the public for today’s changes?Q: How did the ECB go about preparing the public for today’s changes?
My understanding is that the market reaction was pretty muted, Draghi replies, even though the policy announcement was fairly important.My understanding is that the market reaction was pretty muted, Draghi replies, even though the policy announcement was fairly important.
That shows that our communication was pretty effective.That shows that our communication was pretty effective.
2.03pm BST2.03pm BST
14:0314:03
Draghi says there are global factors influencing inflation...but the ECB is focused on the factors closer to home, which it can influence.Draghi says there are global factors influencing inflation...but the ECB is focused on the factors closer to home, which it can influence.
He points out that the eurozone has created more than seven million jobs in the last four years - a sign that his policies are bearing fruit.He points out that the eurozone has created more than seven million jobs in the last four years - a sign that his policies are bearing fruit.
2.00pm BST2.00pm BST
14:0014:00
Draghi is hammering home that the ECB will continue to reinvest the stock of existing assets bought under QE since 2015.Draghi is hammering home that the ECB will continue to reinvest the stock of existing assets bought under QE since 2015.
This has become “more and more important” as we’ve bought “a lot of bonds” smiles Draghi:This has become “more and more important” as we’ve bought “a lot of bonds” smiles Draghi:
Draghi: The stock of purchased assets has become more and more importantDraghi: The stock of purchased assets has become more and more important
When I announced the reinvestment policy in December 2015 "there was no reaction", says #Draghi with a very telling smile.When I announced the reinvestment policy in December 2015 "there was no reaction", says #Draghi with a very telling smile.
The ECB has bought something like two trillion euros of bonds since it plunged into QE in 2015. Draghi’s point is that the programme will still have a major impact on the economy, as the ECB plans to buy new bonds when its existing holdings mature.The ECB has bought something like two trillion euros of bonds since it plunged into QE in 2015. Draghi’s point is that the programme will still have a major impact on the economy, as the ECB plans to buy new bonds when its existing holdings mature.
So there are no plans to start cutting the size of the programme - something the US Federal Reserve is just starting to do.So there are no plans to start cutting the size of the programme - something the US Federal Reserve is just starting to do.
1.52pm BST1.52pm BST
13:5213:52
#Draghi: "atmosphere was positive in governing council" (growth side) "different on inflation" (energy prices) #ECB pic.twitter.com/cnaysxRdU6#Draghi: "atmosphere was positive in governing council" (growth side) "different on inflation" (energy prices) #ECB pic.twitter.com/cnaysxRdU6
1.52pm BST1.52pm BST
13:5213:52
Q: Did you discuss alternative courses of action, before deciding to cut the pace of the APP to €30bn per month?Q: Did you discuss alternative courses of action, before deciding to cut the pace of the APP to €30bn per month?
No, says Draghi. The “atmosphere was pretty positive” at today’s meeting, thanks to the increase in employment across the eurozone and rising wages.No, says Draghi. The “atmosphere was pretty positive” at today’s meeting, thanks to the increase in employment across the eurozone and rising wages.
The discussion thus ‘converged’ on the idea of halving the pace of the QE programme, and running for at least another nine months, although there were “some differences” about the details.The discussion thus ‘converged’ on the idea of halving the pace of the QE programme, and running for at least another nine months, although there were “some differences” about the details.