July ECB Meeting

Backdrop

Today’s ECB meeting has been the main market focus this week and for good reason: central banks are currently the main market drivers.

Market expectations were dovish ahead of the meeting, with some expecting a potential rate cut. The ECB left rates unchanged but paved the way for further easing with new paragraphs in the statement showing a strong determination to act. The ECB said it will examine options for potential asset buying and tiering options. The Governing Council sees interest rates remaining at present or lower levels, at least through the first half of 2020.

During the press conference, ECB President Mario Draghi reiterated that the organisation remains committed to doing whatever it takes. He added that inflationary pressures remain muted and that expectations had declined, justifying ample need for accommodation. He added that geopolitics and protectionism, as well as softening global growth, were also responsible for dampening sentiment.

Draghi also pointed out that no discussion around rate cuts took place today and that any cuts further down the line would come with mitigating measures.

Market Impact

The initial reaction was a quick and short-lived rally in EUR following the unchanged rates announcement. The dovish statement was however quick to catch up with the market with the EUR reaching new intraday lows of 1.11.

The Euro Stoxx rallied above 3,550 while European rates moved lower with the Bund yield falling to new all-time lows.

During the press conference, the moves consolidated before Draghi confirmed any rates cut would come with mitigating measures. However, initial moves were reversed following Draghi’s later comments regarding no rate cut discussion and mitigating measures.

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