ECB announcement a major disappointment

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Nicholas Wall (pictured), Portfolio Manager, Invesco Fixed Income team, comments on the latest moves by the ECB to boost the eurozone economy…

This was a major disappointment versus the market’s expectations. All the speeches, interviews and the ECB forum at Sintra had led the market to believe that they had serious concerns about the negative impact of consistently low inflation prints on trend growth and inflation expectations – but this fear seems to have subsided somewhat. 

President Draghi had been also worrying about the correlation between oil and inflation expectations and commented that this correlation has fallen – but we believe this correlation has fallen largely because the market believed that the ECB was getting serious about its mandate.
The market had a lot of similar positions on so we will see some of these positions get rapidly unwound here. The biggest danger is that market reaction may put the ECB in an awkward position. A large sell off in bonds and a stronger euro will tighten financial conditions in Europe and make inflation even harder to generate – they may be talking about easing again sooner than they wished.

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