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You can find the current article at its original source at https://www.theguardian.com/business/live/2019/sep/12/trump-delays-tariffs-markets-ecb-stimulus-package-qe-mario-draghi-business-live
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| Trump hits out as ECB's Draghi urges governments to spend more - business live | Trump hits out as ECB's Draghi urges governments to spend more - business live |
| (32 minutes later) | |
| My colleague Richard Partington has filed a news story, explaining what the ECB has done today, and why: | |
| The European Central Bank has announced a fresh stimulus package in an attempt to prevent the fragile eurozone economy from grinding to a halt, with an interest rate cut and plans to pump €20bn (£19bn) a month into the financial markets. | |
| In one of the final acts of Mario Draghi’s presidency before Christine Lagardetakes charge of the ECB in November, the central bank said it would reboot its quantitative easing (QE) programme of bond-buying programme in that same month. | |
| The ECB will also cut its deposit rate – the interest paid to commercial banks when they place funds with the central bank – by 0.1 percentage points to a new all-time low of -0.5%, meaning banks incur charges on any balances they keep there. Negative interest rates are meant to encourage banks to lend to consumers and businesses, rather than park their money with the ECB. | |
| The stimulus package comes as the eurozone economy falters alongside a broader global economic slowdown that has been triggered by rising trade protectionism and the US-China trade war. | |
| More here: | |
| ECB announces fresh stimulus as eurozone economy falters | |
| ING’s chief economist, Carsten Brzeski, reckons the European Central Bank is getting worried: | |
| As expected, the ECB has become more alarmed about the outlook for the economy and inflation. As Draghi said during the press conference, the base case scenario was still a benign scenario as it didn’t include the risk of a no-deal Brexit and trade wars. | |
| Nevertheless, the ECB staff projections presented downward revisions to both growth and inflation (as covered here).” | |
| Mike Bell, global market strategist at J.P. Morgan Asset Management, believes European leaders should heed Draghi’s advice. | Mike Bell, global market strategist at J.P. Morgan Asset Management, believes European leaders should heed Draghi’s advice. |
| He also thinks the ECB is trying to keep the euro weak - exactly what president Trump is so cross about. | He also thinks the ECB is trying to keep the euro weak - exactly what president Trump is so cross about. |
| Bell says: | Bell says: |
| “The ECB have played their hand and Draghi has gone out with a bang. The ball now rests firmly in the court of those European governments with the fiscal capacity to join in the easing game. | “The ECB have played their hand and Draghi has gone out with a bang. The ball now rests firmly in the court of those European governments with the fiscal capacity to join in the easing game. |
| The ECB have certainly got ahead of the pack in an ambitious effort to keep the currency low in the face of potential further stimulus from foreign central banks. | The ECB have certainly got ahead of the pack in an ambitious effort to keep the currency low in the face of potential further stimulus from foreign central banks. |
| Lukman Otunuga, senior research analyst at FXTM, says Mario Draghi has made one last push to stimulate the eurozone - before he leaves the European Central Bank next month. | Lukman Otunuga, senior research analyst at FXTM, says Mario Draghi has made one last push to stimulate the eurozone - before he leaves the European Central Bank next month. |
| But, he also believes more measure may be required, given the weakness of Europe’s economy. | But, he also believes more measure may be required, given the weakness of Europe’s economy. |
| Although Draghi has done “whatever it takes” before he hands the mantle over to Christine Lagarde, it seems markets are disappointed with the ECB’s actions. Given the concerns revolving around the health of the Eurozone economy, most were expecting Draghi to launch a monetary policy bazooka before his departure. | Although Draghi has done “whatever it takes” before he hands the mantle over to Christine Lagarde, it seems markets are disappointed with the ECB’s actions. Given the concerns revolving around the health of the Eurozone economy, most were expecting Draghi to launch a monetary policy bazooka before his departure. |
| However, the argument for the ECB saving some ammunition in the monetary policy toolbox could be for when economic conditions worsen. It is worth keeping in mind that the Eurozone is not only dealing with developments at home, but risks in the form of Brexit and Trump imposing tariffs on European goods. With the ECB cutting its growth forecasts for 2019 and 2020, there is potential for further easing down the line should global and domestic economic conditions deteriorate further. | However, the argument for the ECB saving some ammunition in the monetary policy toolbox could be for when economic conditions worsen. It is worth keeping in mind that the Eurozone is not only dealing with developments at home, but risks in the form of Brexit and Trump imposing tariffs on European goods. With the ECB cutting its growth forecasts for 2019 and 2020, there is potential for further easing down the line should global and domestic economic conditions deteriorate further. |
| The Euro collapsed like a house of cards following the rate decision with prices crashing towards $1.0930 against the Dollar before later recovering over $1.1000. Further weakness may be on the cards in the near term as investors digest the ECB’s action and prospects of further easing in the future. | The Euro collapsed like a house of cards following the rate decision with prices crashing towards $1.0930 against the Dollar before later recovering over $1.1000. Further weakness may be on the cards in the near term as investors digest the ECB’s action and prospects of further easing in the future. |
| Analyst Arne Petimezas of AFS Group is disappointed that the ECB hasn’t announced a larger package today. | Analyst Arne Petimezas of AFS Group is disappointed that the ECB hasn’t announced a larger package today. |
| Draghi gives member state carte blanche for fiscal pump priming. But there are too few signs of a Euro Area fiscal stimulus package. By itself today's package is a disappointment: fiddling in the margins. Unsurprisingly, ECB staff don't see 2% inflation in the forecast horizon. | Draghi gives member state carte blanche for fiscal pump priming. But there are too few signs of a Euro Area fiscal stimulus package. By itself today's package is a disappointment: fiddling in the margins. Unsurprisingly, ECB staff don't see 2% inflation in the forecast horizon. |
| Ronald Temple, co-head of multi asset at Lazard Asset Management, says Mario Draghi is quite right to call for higher government spending: | Ronald Temple, co-head of multi asset at Lazard Asset Management, says Mario Draghi is quite right to call for higher government spending: |
| “Today the ECB used more of its dwindling ammunition to try to stimulate growth. Draghi rightly emphasized the imperative of fiscal stimulus and structural reforms. Unfortunately, Eurozone governments have failed to deliver on this count for a decade now, in spite of ever lower financing costs. | “Today the ECB used more of its dwindling ammunition to try to stimulate growth. Draghi rightly emphasized the imperative of fiscal stimulus and structural reforms. Unfortunately, Eurozone governments have failed to deliver on this count for a decade now, in spite of ever lower financing costs. |
| The ECB has done its job; now it’s time for the governments to step up.” | The ECB has done its job; now it’s time for the governments to step up.” |
| Never play the Forex, folks. | Never play the Forex, folks. |
| After plunging earlier, the euro has now bounced back and is up around 0.15% against the US dollar today. | After plunging earlier, the euro has now bounced back and is up around 0.15% against the US dollar today. |
| There it is #EURUSD pic.twitter.com/XDbtBmBucq | There it is #EURUSD pic.twitter.com/XDbtBmBucq |
| Economists are chewing through the technical details of the ECB’s stimulus programme now. | Economists are chewing through the technical details of the ECB’s stimulus programme now. |
| Fred Ducrozet of Pictet Bank reckons some parts are actually ‘less generous’ than first thought, such as the ‘tiering system’ that will protect euro banks from more punishing negative rates. | Fred Ducrozet of Pictet Bank reckons some parts are actually ‘less generous’ than first thought, such as the ‘tiering system’ that will protect euro banks from more punishing negative rates. |
| The @ecb press releases:- QE possible with negative rates in all programmes, including CSPP (https://t.co/LwXZFZBlXO)- 3Y TLTRO-III without 10bp rate premium (https://t.co/FGe5wXIhI0) - Two-tier system with exemptions multiple set at 6x initially (https://t.co/m58boyeLbv) | The @ecb press releases:- QE possible with negative rates in all programmes, including CSPP (https://t.co/LwXZFZBlXO)- 3Y TLTRO-III without 10bp rate premium (https://t.co/FGe5wXIhI0) - Two-tier system with exemptions multiple set at 6x initially (https://t.co/m58boyeLbv) |
| CORRECTION: The new tiering is not a Japanese but a Swiss model! Exemptions multiple will be set at 6x the minimum reserve requirements, to be reviewed over time. Less generous than expected. Initial wording was misleading. https://t.co/utpN4jZivK | CORRECTION: The new tiering is not a Japanese but a Swiss model! Exemptions multiple will be set at 6x the minimum reserve requirements, to be reviewed over time. Less generous than expected. Initial wording was misleading. https://t.co/utpN4jZivK |
| Q: If governments don’t heed your advice to boost spending, will the ECB be forced to resort to helicopter money? | Q: If governments don’t heed your advice to boost spending, will the ECB be forced to resort to helicopter money? |
| Mario Draghi says the governing council hasn’t discussed helicopter money [literally giving cash away to citizens]. | Mario Draghi says the governing council hasn’t discussed helicopter money [literally giving cash away to citizens]. |
| It could be part of our strategic review in future, he adds (that will be conducted by his successor, Christine Lagarde). | It could be part of our strategic review in future, he adds (that will be conducted by his successor, Christine Lagarde). |
| And Draghi wraps up with another nudge to European politicians, saying: | And Draghi wraps up with another nudge to European politicians, saying: |
| Giving money to people is a fiscal policy task, not a monetary policy task. | Giving money to people is a fiscal policy task, not a monetary policy task. |
| That’s the end of the press conference -- I”ll post a summary and reaction now. | That’s the end of the press conference -- I”ll post a summary and reaction now. |
| Q: What about criticism from politicians and bankers about negative interest rates? | Q: What about criticism from politicians and bankers about negative interest rates? |
| Negative interest rates are a necessity to help us meet our mandate, Mario Draghi replies firmly. | Negative interest rates are a necessity to help us meet our mandate, Mario Draghi replies firmly. |
| He adds that 11 million jobs created in recent years, and insists that German citizens have benefitted from the ECB’s stimulus measures [even though savers have been hit with lower interest rates]. | He adds that 11 million jobs created in recent years, and insists that German citizens have benefitted from the ECB’s stimulus measures [even though savers have been hit with lower interest rates]. |
| Banks don’t like negative rates, but they won’t cause the collapse of the financial system, the president adds (well that’s a relief!). Banks should focus on improving their own costs, he adds. | Banks don’t like negative rates, but they won’t cause the collapse of the financial system, the president adds (well that’s a relief!). Banks should focus on improving their own costs, he adds. |
| Eurozone bonds prices are surging, as investors react to the ECB’s pledge to buy €20bn of new debt each month. | Eurozone bonds prices are surging, as investors react to the ECB’s pledge to buy €20bn of new debt each month. |
| This has driven yields (or interest rate on the bonds) down. | This has driven yields (or interest rate on the bonds) down. |
| Germany’s 30-year bond is now trading at a negative yield again - meaning Berlin can effectively borrow for free! | Germany’s 30-year bond is now trading at a negative yield again - meaning Berlin can effectively borrow for free! |
| That sounds like the perfect time to boost government spending, despite the German government’s reluctance to run a deficit. | That sounds like the perfect time to boost government spending, despite the German government’s reluctance to run a deficit. |
| Entire German Yield Curve back in negative territory w/German 30y yield now at -0.09% on #ECB QE infinity. | Entire German Yield Curve back in negative territory w/German 30y yield now at -0.09% on #ECB QE infinity. |