Global Markets Surge After Traders "Reassess" ECB Stimulus
By Tyler Durden
Three months ago, on December 4, when the ECB clearly disappointed markets and European stocks tumbled as the Euro soared, it took a speech by Mario Draghi at the Economic Club in NY to send stocks soaring…
… when Draghi explained that the ECB’s announcement was not at all “disappointing”, and subsequently held this exchange with former BOE head Mervyn King who asked “was today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi responded “Not really… well, of course.” As shown in the chart above, stocks promptly soared if only briefly.
Fast forward to the price action over the past 24 hours, when markets again stumbled into a world of mayhem after stocks first soared and the EUR tumbled, only for the move to reverse itself after Draghi hinted that there would be no more rate cuts. The markets clearly ignored the fact that at the same time, Draghi announced a far more important expansion of QE, one including corporate bonds to unclog what had been a largely blocked bond issuance pipeline together with 4 TLTROs which would end up paying banks to lend money.
It took a while, but market participants got it: “Draghi made the mistake of essentially saying that the ECB was done with stimulus, and the market overreacted to this,” said Teis Knuthsen, CIO at Saxo Bank’s private- banking unit. “At the end of the day, the ECB delivered more than expected and is pumping a lot of money into the system. A few years ago this would have marked the start of a significant rally, but now there seems to be a widespread fatigue with monetary policy.”
Maybe, but not today, because the result has been that after “reassessing” – in Bloomberg’s parlance – what the ECB did, following yesterday’s plunge, risk has soared overnight with both Asian and European stocks surging, sparing Draghi the indignity of having to explain why he did what he did, and that it was all to prop stocks higher. Sure enough, as of this moment European bourses are all broadly higher led by banks, with the DAX and FTSE both up over 2.7%, while the Stoxx 600 is higher by 2.3% as of this writing.
Nowhere is the return of euphoria clearer, however, than in bank stocks, which as seen below are soaring.
Still, as Bloomberg notes, despite today’s advances, European equities are heading for their first weekly drop in four, with the Stoxx 600 down 0.6 percent. Commodity producers, automakers and banks – the most battered in the recent selloff – had led a 13 percent rebound from February’s low through a five-week high on March 4. As of yesterday, the index traded at 14.6 times estimated earnings, still far below the 16.7 multiple reached last April.
As Bloomberg adds, “investors have had to deal with increased volatility this year, and Thursday’s market reaction exemplifies a trend that’s been intensifying in …read more
Source: Global Markets Surge After Traders "Reassess" ECB Stimulus
