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Will ECB deliver? Markets expect Draghi bazooka
Markets took on a cautious mood as investors digest soft Chinese trade data and are less willing to take on risky positions ahead of the European Central Bank monetary policy decision on Thursday.
The Tokyo Nikkei was down 1 per cent and the ASX 200 was up 0.9 per cent. The Shanghai Composite was down 2.9 per cent and the Hang Seng was down 0.6 per cent by mid-session trading today. Yesterday, the S&P 500 having ended a five-session run of gains to close down 1.1 per cent.
Lingering uncertainty once again sent investors scurrying to the yen, a perceived haven asset, which strengthened as much as 0.3 per cent to Y112.44 against the US dollar in early trading.
On Thursday, the ECB is widely expected to take action again to help stimulate the Eurozone economy. The measures are expected to be in the form of lower rates and an increase to the Bank’s bond buying programme. ECB Chief Mario Draghi in recent comments has indicated that the central bank is poised to do more to achieve its target of inflation at close to 2 per cent. Markets are expecting Mario Draghi to take out his bazooka at this meeting.
In the ECB’s last meeting in December, Mr Draghi under-delivered on promised policy easing and the euro soared 3 per cent — its biggest one-day rise in six years. The euro had been pushed lower and stock markets had been driven higher in expectation that the ECB would do something more meaningful, and cut rate by at least 20 basis points and not the 10 bp that was delivered. So in disappointment, the markets unwound the positions built in advance of Draghi’s announcement.
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