Market commentary: Draghi delivers the famous QE

Mario Draghi lived up to his promise as the ECB yesterday launched a bond buying program that is set to run until September 2016. The fact that is open ended is positive in the sense that the program should help to raise inflation expectation. We will wait and see. 

Market chatter on Wednesday indicated that the ECB was set to launch a bond buying program that will see the European Central Bank buying bonds to the tune of 50 billion euro a month.

This chatter was more than confirmed and expectations were exceeded as President Draghi yesterday announced that they the ECB will buy up to 60 billion euro a month, albeit this amount includes the current €10 billion asset purchase program currently in place.

This announcement was expected and anything short of a full blown QE would have sent the markets in a spiral mode. On the announcement market edged higher, not only in Europe as this positive momentum helped optimism all around the globe.

At the time of going to print Asia is trading higher and European futures are indicating a positive start. Sovereign bonds edged higher with yields going lower across the euro nation except for Greece, who have got their elections to contend with this weekend. More on that later.

Back to the ECB program, although we did not get the whatever it takes speech, this was very much in line with that and a commitment that ECB will do whatever needs to be done. Good news indeed. We are aware that the ECB on its own can’t solve all the problems and therefore we will continue to monitor policies and fiscal measures in Europe that will be aimed to foster growth. Going forward it would be interesting to see how sovereign yields will continue to edge lower on this buying programme.

The Oil saga is still on the table and has been widely discussed in Davos over the course of this week. Yesterday, King Abdullah of Saudi Arabia passed away, and this may increase volatility and uncertainty in the short term. Last November Saudi was at the forefront to back a decision to maintain oil production quota. The latter is one of the reasons why oil has been edging lower.

Greece is set to go to the polls next Sunday. The Syriza party continued to gain popularity and the outcome of this election will determine whether debt stricken nation will stick to the bailout terms or whether it will try to solve its own problems otherwise.  The Syriza party stated many times that they would like to keep the nation in the Eurozone.

In terms of data, out of the US we will await the existing home sales figures which probably rose in December and the China PMI data as published by Markit and HSBC. Out of Europe we will await the PMIs.

On the corporate front General Electric, McDonalds, Bank of New York and Kia reports today.

This article was issued by Darin Pace, Treasury Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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