European Central Bank President Mario Draghi's press conference
earlier today reiterated a few major themes we have heard over and
over again recently. Euro zone inflation remained low, credit
growth was weak, unemployment rates are too high, and growth is
right around the corner. Some market participants were hoping for
the ECB to drop its main interest rate to 0.10% from 0.25%.
Instead, the Central Bank held rates steady, sending the Euro up to
1.36 against the US Dollar.
This decision came on the heels of a German Factory Orders report
that disappointed in December, falling half a percent from the
prior month and missing consensus estimates of a 0.2% increase.
As the US begins to unwind QE it appears as if the ECB has no
intention of adding further liquidity to their banking system.
Draghi's number one priority remains keeping inflation below, but
close to 2%. Currently annual inflation in the Euro zone is
estimated at 0.7%.
Stateside I like to remind everyone that Fed tapering of QE does
not mean we are out of the QE business. We are just lowering the
dosage so the comedown is easier. Japan is aggressively encouraging
Yen easing as well. In the face of US and Japanese policy I think
the ECB has to be more dovish. However, as we have seen in the past
the ECB lacks the power that central banks in the US and Japan
have. A good solution would be some sort of lending backstop
program from the ECB that would encourage more lending from banks
as their balance sheets have finally strengthened.
What is your take? Is the ECB doing enough to facilitate
growth in the Euro zone? Does the ECB have enough firepower to
tackle the problems in Europe?
ISHARS-MS EU FN (EUFN): ETF Research Reports
ISHARS-EMU IDX (EZU): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
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