Summary for the 13th of September -Draghi delivers


As of November, the ECB will be purchasing 20 billion euros worth of debt a month. Even though the amount is lower than what the markets have expected of 50 billion euros, the bond yield still declined immediately after the announcement. Unlike previous announcements of debt purchasing, this announcement doesn’t give a time horizon of when the purchasing will end. The ECB says the debt purchasing will be as long as necessary.

The deposit rate is reduced even further to minus 0.5% from minus 0.4% with potential further rate cuts in the future. The ECB says the interest rates will be at the present level or lower until the inflation converges to the goal of 2%. Banks and lenders also get exemption from negative rates for some of their deposits at the ECB.

ECB’s TLTRO program has also been changed. The loan’s maturity is extended from two years to three years. The interest rates of the loan is lowered from 10 basis point above the average interest rate to the average interest rate.

Draghi says at the meeting that it is time for the fiscal policy to take charge. With slower economic activity and increasing downside risk, the fiscal space should act in an effective and timely manners. The statement indicates that ECB’s monetary policy is starting to lose its effectiveness.

Indices for 13th of September
Dow: +0.2 % (12th of September
S&P 500: +0.3% (12th of September)
Nasdaq: +0.3% (12th of September)
Nikkei: +1%  (13th of September)
Chinese indices: Closed (13th of September)
STOXX Europe 600 Index: +0.34% (13th of September)

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