ECB cuts rates and expands QE program, European indices lower, ASX futures down 4 points

As widely expected by economists, Mario Draghi and the ECB announced additional stimulus measures overnight. The president announced a cut of 10 basis points on the deposit rate to minus 0.40% as well as lowering the main refinancing and marginal lending facility rates. In addition it was also announced the QE program would be extended to €80 billion per month starting in April, which will now include investment grade corporate debt, and finally an additional four multi-year lending programs through TLTRO II in an effort to stave of deflation in the troubled Eurozone. Importantly, Mario Draghi suggested that while the ECB can cut rates further, it is not likely to, stating “It’s a fairly long list of measures, and each one of them is very significant and devised to have the maximum impact in boosting the economy and the return to price stability -- we have shown we are not short of ammunition,….. From today’s perspective, we don’t anticipate it will be necessary to reduce rates further.” European indices traded lower after the announcement, with the DAX down 2.31% and French CAC down 1.79%. Meanwhile the EURUSD finished higher after initial losses, up 2.20%.

Elsewhere Chinese CPI for February came in higher than expected on Thursday, an increase of 2.3% as opposed to expectations of 1.8%. US initial jobless claims came in lower than expected at 259,000 against expectations of 275,000, and the S&P 500 index closed flat.

Commodities are mixed this morning, with Iron Ore down 0.17% and Oil (WTI) down 0.89%, while Gold and Silver were both higher overnight. The first chart below shows both US dollar spot gold and silver now trading some 21% and 14% higher from their December lows.

Finally, the second chart below highlights the ASX200 index up 10% from its February low. As highlighted by our technical analysts, it is now trading at the upper band of a trend channel; however, momentum indicators are now highly overbought, suggesting the risk of a pullback from current levels is increasing.

ource: Rivkin, Updata

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This article was written by James Woods, Global Investment Analyst - Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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