"Contrary to what you might have read over at FT, Mario Draghi met (but certainly did not exceed) market expectations for a depo cut, moving 10 bps further into NIRP-dom in a desperate attempt to get inflation moving in the "right" direction and get a leg up in the global currency wars. Unfortunately, the market was looking for more and so, the EUR surged after the announcement.
Now, the fireworks can begin as the market will be glued to the presser in hopes Draghi will make up for not going with a 20 bps cut by over-delivering on QE expansion/extension.
ECB TO EXTEND ASSET-BUYING PROGRAM TO AT LEAST MARCH 2017
DRAGHI SAYS ECB WILL EXTEND QE UNTIL MARCH 2017 OR BEYOND
DRAGHI: ECB WILL REINVEST PRINCIPLE PAYMENTS AS LONG AS NEEDED
ECB TO BROADEN ASSET-BUYING PROGRAM TO INCLUDE REGIONAL DEBT (Munis!!)
DRAGHI SAYS STAFF PROJECTIONS SIGNAL DOWNSIDE INFLATION RISKS
EUR FRESH HIGH OVER 1.0800 AS ECB QE EXTENDED, NOT INCREASED
DRAGHI SAYS ECB ABLE, WILLING TO ACT WITH ALL TOOLS IF NEEDED
Make no mistake, Draghi has under-delivered just as we and others warned he might. 10 bps on the depo rate is underwhelming, especially in light of the fact that the "leaked" two-tiered NIRP regime idea seemed to telegraph a larger cut. Meanwhile, no expansion of PSPP is a major disappointment, as most seemed to be looking for at least a €15 billion increase in the monthly pace of purchases. Finally, the six month extension of the program was really the bare minimum Draghi could have announced without triggering a veritable revolt from a spoiled market.
This is undoubtedly a relief for the Riksbank, the Nationalbank, and the SNB as it takes some of the pressure off in terms of having to cut further."
