Europe News

ECB disappoints: Trading over for the rest of 2015?

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After the European Central Bank's December meeting was less Christmas cracker and more damp squib for traders, some are suggesting that trading is over until the New Year.

For those who had bet on a big quantitative easing (QE) program there were several big disappointments: the size of the program which was announced; the lack of increase in the monthly pace of asset purchases; and the mounting evidence that ECB President Mario Draghi and other pro-QE players on the ECB's governing council are facing more backlash from those, like Germany's central bank, who think that the euro zone shouldn't undergo more money printing.


President of the European Central Bank Mario Draghi
ECB to extend QE until at least March 2017, buy regional government bonds

"I remain disheartened that seven years on since the financial crisis the euro zone cannot stand on its own feet without massive central bank intervention and guarantees," David Folkerts-Landau, chief economist at Deutsche Bank, said in a statement.

"Monetary policy is compensating for a lack of national government progress on necessary structural reforms... I strongly believe that this is unsustainable."

The euro posted one of its largest intraday gains ever on Thursday, as traders scrambled to adjust their positions. Even Goldman Sachs currency analysts conceded that they "badly misread this meeting".


Mario Draghi
Ralph Orlowski | Reuters

"After an epic size disappointment by the ECB, many on the trading floor are inclined to suggest that trading for the year maybe effectively over," currency strategists at Citi wrote in a research note.

With a rate hike from the Federal Reserve, the ECB's U.S. equivalent, priced in for its December 15-16 meeting in many portfolios, it looks like the only potential surprises for traders for the rest of the year – for example, that the Fed does not hike rates - are negative.


European Union flags in front of the headquarters of the European Central Bank in Frankfurt am Main, Germany.
Why the ECB's moves are good for the market

With that in mind, it is unsurprising that many are scaling back risk. As the euro currency continues to move higher, potentially damaging exports from the single currency region, there are plenty of warnings already that the limited program may ultimately be counter-productive.

"Mr. Draghi took out his bazooka yesterday and fired it into his own foot," currency strategists at Rabobank wrote in a research note.


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