A version of this commentary originally appeared on Real Money Pro at 8:11 a.m. ET on Thursday March 10. Click here to learn about this dynamic market information service for active traders.
The European Central Bank's moves today came in pretty much in line with expectations.
Here are details of what bank announced following today's policy meeting:
- The ECB cut its ref rate to 0% from a previous 0.05%, reduced its deposit rate by 10 basis points to -0.40% and eased its marginal-lending rate to 0.25% from an earlier 0.30%.
- The central bank is expanding quantitative easing by 20 billion euros a month to 80 billion euros monthly.
- The ECB is expanding QE to include investment-grade corporate bonds.
- The bank announced four new TLTROs of four-year maturities.
Absent structural reforms, I don't see any benefit to our markets from the ECB's actions today, even though investors' initial (and Pavlovian) response was one of near euphoria.
The U.S. dollar should firm up and the euro should drop in this zero-sum game of currency debasement, while the U.S. corporate-profits outlook should be diminished.
"I wonder how the ECB is going to pick and choose which investment-grade bonds to buy. Also, why would holders of investment-grade bonds sell them to the ECB -- especially if you're an IG-bond manager? You'll have to do something else with the proceeds. This isn't like holding sovereign bonds, which many banks have. ...
The bottom line: The European region wasn't lacking in liquidity, so another fire hose of it isn't going to make a difference. The question isn't whether ECB chief Mario Draghi exceeded market expectations or not. The main point is that an increased dosage of the same policy isn't something new, and just gets the ECB further into an easing ditch that will be impossible to get out of without major disruptions.
But of course, that's a worry for another day. I get the initial market euphoria, as markets are trained for that. But I very much question the lasting nature of it."