Thursday 26th October: Those who had been sitting tight in anticipation for Mario Draghi and the ECB’s latest announcement finally got their wish. In the biggest step yet, the ECB is set to start weaning the euro zone economy off years of stimulus. Although continuing their bond-buying programme through to September 2018, it will be at a reduced rate of €30bn come January. Although September 2018 has been ear-marked , there is the option to extend QE past this date and so no fixed end-date is to be announced.
The move to reduce (but continue) QE isn’t too dissimilar of the US, although the latter is expected to raise interest rates for the third time this year at their respective December meeting. However, the ECB look to be far from mirroring Janet Yellen’s actions, with eurozone interest rates expected to stay at their current levels for the foreseeable future, and “well past” the end of QE. Eurozone inflation sits at 1.5% and although higher than expected, is still below the ECB’s target of c.2%, with Draghi arguing that they stand ready to increase asset purchases in terms of size and/or duration, should financial conditions or the outlook become less favourable. The UK and US are currently exceeding their respective 2% inflation targets.
The euro weakened on the back of Draghi’s dovish comments, although the selection process for the next leader of the Federal Reserve speculatively added to US dollar gains. GBP/EUR is +0.28 @€1.1259; EUR/USD is -1.00% @ $1.17 at the time of writing.
Although London indices were littered with ex-dividend stocks, the headlines were grabbed by Barclays who fell 7.41% as third quarter profits fell below expectations. Barclays boss Jes Staley hasn’t been in the headlines for all the right reasons, currently under investigation for trying to uncover the name of a whistleblower, but he is also struggling to defend his strategy to revive the investment bank division, amid some calls to ditch the business. It is the UK’s only global investment bank, reporting an 18% fall in quarterly revenues.