Thursday, January 22, 2015

News: ECB announces QE program - Reaction in Davos

The ECB made its new QE program public on Thursday. There was not any real surprise in the announcement other than the amount was larger than some expected, but some analysts in Davos reacted by saying the QE program was too small or that they don't think it will have much impact in the EU. 

Below are a couple of articles on this with quotes from each. Gold reacted by moving up some. As you would expect the Euro fell against the US dollar. So, once again both the US dollar and gold moved higher together. This is a pattern we have noted here and will continue to follow.


ECB to by sovereign debt

"The European Central Bank will launch an expanded “asset purchase program,” expanding its monthly purchases to €60 billion, said ECB President Mario Draghi Thursday."
"The announcement was made during Draghi’s press conference following the central bank’s monetary policy. He said that the purchase program will start in March and go until at least September 2016. As expected, the sovereign debt purchases will be proportional to each eurozone member country’s debt."
"As some analysts expected, the larger-than-expected purchase-program has helped gold prices jump into positive territory Thursday."

"Central banks have surprised markets this month, and the European Central Bank was no exception on Thursday announcing a much higher than expected stimulus package for the region."
"At a press conference on Thursday, ECB president Mario Draghi announced a €60 billion per month QE package in Europe, beginning in March 2016 and running to September 2016. Market expectations, based on leaked ECB documents on Wednesday, sat at around €50 billion."
"However, some leading economists, attending the World Economic Forum’s Annual Meeting in Davos, said quantitative easing is not enough to revive the European economy."
. . . . .
"Looking to the U.S. economy, Gary Cohn, president and chief operating officer of Goldman Sachs, said that struggling economies are currently in a race to devalue their currencies."
We’re in a currency war. One of the easier ways to stimulate your economy is to weaken your currency,” he said, adding that if the U.S. economy’s strength continues while other economies continue to weaken; it could delay a Federal Reserve rate hike."

Angela Merkel Calls for Urgent Fiscal Reforms

At the same time the European Central Bank was surprising markets with a €60 billion monthly asset-purchase program, Germay’s Chancellor Angela Merkel was advocating for “urgent fiscal reforms” in Europe at the 45th World Economic Forum annual meeting in Davos, Switzerland."
"In her keynote address Thursday, Merkel said that European leaders must continue to move forward with fiscal reforms if the eurozone is going to emerge strong from it latest economic crisis."
“Time is of the essence,” she said. “Every day we delay is a lost day. We need to promote growth and create long-term jobs,” she said in her speech, according to a WEF press release."

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