The European Central Bank (ECB) meeting on 25 July was billed as the most important ECB meeting of the last few years. Andrew Mulliner, Portfolio Manager within Global Bonds, reflects on the outcome of this highly anticipated session.
The European Central Bank (ECB) meeting today was billed as the most important ECB meeting of the last few years, and today’s statement and press conference read in isolation, mark a significant statement of intent with regards to its willingness and ability to “do whatever it takes” (2.0).
In reality, the main event had already occurred in Sintra in June at the ECB’s Forum on Central Banking — the ECB’s equivalent to the US Federal Reserve’s Jackson Hole Economic Symposium. At the forum, President Draghi and other ECB officials had set forth a much bolder vision of future ECB monetary easing than many investors (including myself) felt was possible; including lower rates and additional asset purchases that were all but confirmed at today’s meeting.
In the intervening week’s since Sintra, the market has moved to price in an additional 20 basis points of rate cuts in the coming months and peripheral bond yields and corporate spreads have fallen dramatically on the expectation of a significant asset purchase programme. Subsequently, in spite of the headline billing for today’s meeting, the ECB managed to deliver ‘shock and bore’ rather than ‘shock and awe’ to investors.
As a result, the markets’ initially euphoric reaction to the confirmation of an imminent shift to easier policy has quickly been unwound with the euro heading towards the highs of the day, German bund yields — having hit record lows — retreating sharply, and equities now flat on the day. Investors, like children waiting for Christmas, can be short of patience. With key additional information missing, such as the size and composition of asset purchases as well issuer caps, the market is left with almost exactly the same amount of information as at the start of the day. Patience may be a virtue, but it sure is boring.