Mr. Draghi Fails To Deliver

George Yacik - Contributor - Fed & Interest Rates

Mario Draghi may have cried wolf one too many times.

I've watched with amazement over the past couple of years as the European Central Bank president has gotten more mileage from saying what he intends or plans to do in the future – without actually having to do it – yet nearly always gets the financial markets to do what he wants them to do.

But, it looks like he ran out of luck on Thursday when he announced at his regular press conference after the ECB's monthly meeting that the bank was going to put off until "early next year" any new measures to try to stimulate the moribund Eurozone economy.

Not surprisingly, the euro surged, sovereign bond yields rose and stock prices plummeted after Draghi’s disappointing remarks. The euro jumped over a penny, or more than 1%, against the dollar while yields on Italian and Spanish 10-year government bonds rose about four basis points. In recent weeks, yields on Eurozone sovereign bonds have dropped to their lowest levels on record on speculation that the ECB would soon start buying up those bonds, as well as those of other countries.

Before the meeting, it had been widely expected that Draghi would announce the ECB will start buying government, and possibly corporate bonds too, to try to boost inflation in the zone. So far it has bought covered bonds and other asset-backed securities, with little in the way of economic improvement to show for it. Indeed, at the ECB's previous meeting in early November, Draghi said the bank would take further steps to increase its balance sheet in order to boost the currency zone's economy, which many took to mean government bond purchases were next on the agenda. Continue reading "Mr. Draghi Fails To Deliver"