For bonds, it pushed yields lower from already low levels. Anthony Doyle, investment director at M&G Retail Fixed Interest team: “The market witnessed a very dovish ECB President Mario Draghi today. …Government bonds rallied on the news with the German 2 year bund hitting a record low of -0.32%…It is clear that the ECB remains concerned about the pace of the economic recovery in Europe and the implications this will have in meeting its inflation target of below but close to 2 per cent. In addition, the slowdown in global growth weighed on the ECB Governing Council, particularly the uncertainties around emerging market growth.
He points out that the ECB’s quantitative easing programme is only equivalent to around 3% of GDP. By way of comparison, the Bank of England’s £375bn QE programme represents close to 20% of GDP. By this measure, it is clear that the ECB should and will act to increase its asset purchase programme at its next meeting as there is plenty of scope to do more. He adds: “Any move to beef up QE would likely support asset prices, particularly in European bond markets and would probably result in a weaker euro.”
Do Draghi’s comments change the picture for investors? The economic data was mixed and is likely to remain open to interpretation. However, both bond and equity prices are likely to be supported by further monetary stimulus. On balance, it appears this may have been a good day for Eurozone investors.
