Market Volatility Spurred by What the ECB Did Not Discuss

We may have seen plenty of volatility throughout the ECB press conference today but in reality, all Mario Draghi and the ECB actually did was confirm what most people already assumed. What was most interesting today was not what the ECB did discuss – which appears to have been very little – but what they didn’t, being an extension of asset purchases beyond March 2017 or tapering of asset purchases.

Clearly it is the intention of Draghi and his colleagues to continue exploring the options available to them that will enable them to provide the necessary monetary support to the euro area, while sticking within the tight restraints of their mandate. December also offers the luxury of the latest economic projections that will assist in deciding just how far to extend the QE program and whether any additional, or less, stimulus is needed. All things considered, an announcement of any kind never seemed likely today but based on Draghi’s comments, December should be a very interesting month, especially if we also get a rate hike across the pond.

While there was a lot of volatility throughout the press conference as traders reacted to Draghi’s claims that policy support won’t last forever and the list of all the important points that apparently weren’t discussed, the euro is now trading just shy of earlier levels. This potentially reflects the view that tapering in the near term now looks extremely unlikely, the only real uncertainty now is whether the ECB will find a solution to the scarcity of bonds that is seen as satisfactory by the markets.