ECB Keeps Accommodation Party Rockin’

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COMMENTARY: Saturday, November 9, 2013

 [NOTE: As there is a problem with the press conference video on the ECB website, the picture is linked to the Introductory Statement and following Q&A transcript.]

While there are certainly good reasons why the Euro-zone deserves a bit more near term accommodation, so much is already flowing from the Fed and BoJ it is likely the ECB could have taken just a bit more time. Quite a few folks (present analyst excluded) were sure the ECB would demure until the next meeting. Yet, as Signore Draghi noted in his press conference discussion, the signs were all there for anyone who was peering with an unbiased eye into the previous meeting’s tea leaves.    

In light of the erosion of Euro-zone data and economic psychology into areas previously considered solid, the real question on any Draghi gamble would be if he was willing to risk a serious downside scare if he did not move. (Especially note the Q&A exchanges on page 6.) Not that we believe all the extended central bank largesse (after the more effective early interventions) over the past couple of years can really revive the developed countries now very convoluted economic fortunes.

In fact, they are more likely prolonging the pain, even if at a more subdued level. (More on that below.) However, in light of the fraught Euro-zone negotiations on matters like forming the German government and banking union, Draghi & Co. likely felt it best to avoid any risk of a renewed crisis which would highlight how messed up the weaker Southern Sisters remain.

And so, in spite of somewhat better US economic data (reinforced in the near term by Friday’s Employment report’s major jobs overshoot), the ECB went ahead and gave the equities reason for cheer that was equally troubling for the primary government bond markets and the euro. However, the question remains whether that’s the whole story, as later on in the press conference he said something truly astounding for a man who had just cut interest rates by 25 basis points to a mere 0.25%...

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