Market Reaction to Draghi’s Speech
On this edition of Market Week in Review, Todd LaFountaine, program director, advisor insights, chatted with Chief Investment Strategist Erik Ristuben about the market’s reaction to European Central Bank (ECB) President Mario Draghi’s speech earlier in the week.
The exact meaning of Draghi’s speech was very challenging to decipher, Ristuben emphasized. The initial reaction among many was that he was making a fairly hawkish statement. This is because Draghi first talked about how the ECB had to be persistent in pursuing a monetary policy that brought inflation in line with its objectives. Then, Ristuben noted, Draghi went on to reference a possible rewind of the fiscal stimulus and a halt of asset purchases.
The market interpreted this as Draghi’s way of preparing investors for the dreaded taper conversation in September – that is, the scaling back of the ECB’s monetary stimulus program. As a result:
The ultimate question, according to Ristuben, is whether or not Draghi was actually trying to prep the market for potential taper talks in September. What he was more likely attempting to do, in the view of Ristuben, is demonstrate to the market that much of what the ECB has been doing is working. For example, the European economy is becoming more self-sustaining and doesn’t need as much support in the future as it’s had. Therefore, in Ristuben’s view, Draghi was simply saying that when the ECB reaches the point where it needs to start removing some of the measures it put in place to spur economic growth, it’ll be prudent.
“It was an interesting week,” Ristuben concluded, “but I don’t think Draghi is locked into a September announcement on the taper in any way, shape or form.”
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