The European Central Bank (ECB) yesterday fired its big bazooka by announcing a fresh landmark round of quantitative easing (QE) amounting to €60bn a month from March until the end of September 2016.
The programme will comprise €1.1trn in asset purchases over the 18 months following March in order to address the risks of a too prolonged period of low inflation in the eurozone after the region officially entered deflation last month.
Speaking at the World Economic Forum in Davos, ECB president Mario Draghi (pictured) explained the expanded asset purchase programme would combine monthly purchases of public and private sector securities until the eurozone experienced a “sustained adjustment in the path of inflation… consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term”.
portfolio institutional has assembled a round-up of industry reactions to the announcement and comment on what a further injection of QE means for investors.
Bill Street, head of investments for EMEA at State Street Global Advisors:
“2015 is a pivotal year for Europe, and Mario Draghi has fought claims of illegality and pressures from the ECB’s governing council members to get to this point. It is crucial that national governments act with similar strength and fulfil their role in doing ‘whatever it takes’ to help Europe. Draghi has consistently made the point that monetary policy can only go so far. It needs to be coupled with structural reform and the liberalisation of labour markets across Europe to be a true success. Patience is running thin for laggards in the reform process.
“We expect this to have a positive effect on risky assets, drive further weakening of the EUR and support lower bond yields in both the core and periphery of the euro area.”
James McAlevey, head of interest rates, Henderson Global Investors:
“The ECB has crossed the Rubicon today. We believe this programme is a significant step for European monetary policy and the credibility of the ECB. Indeed, at first glance markets agree; the euro is weaker, breakeven inflation is higher and peripheral spreads continue to contract while European stock prices are rising. However, in the longer term the question remains: is quantitative easing really the answer to eurozone’s problems? Evidence from other countries is ambiguous. Our take is that the ECB has done what it can; in the long run politics and fiscal policy will be as important to a sustainable European recovery.”
David Stubbs, global market strategist, JP Morgan Asset Management:
“For both institutional and retail investors, today’s announcement from the ECB will encourage investors to get out of sovereign bonds, effectively pushing yields lower than they might have otherwise been. This encourages investment in higher yielding assets such as equities. Therefore pensions will have to take a multi-asset approach to meet their income goals.”
Frank Engels, head of fixed income, Union Investment:
“The ECB’s decision to transfer the risk of the bond purchases mostly to national central banks is counterproductive. This will lead to a further fragmentation of the Eurosystem and could, at least temporarily, cancel out any positive effects from the programme of quantitative easing, particularly in the case of periphery countries.”
Neil Williams, group chief economist, Hermes Investment Management:
“After three years of baby steps, Mr Draghi has today taken the giant leap forward financial markets were waiting for – but it will be no panacea. Anyone expecting the QE bazooka to quickly fix the problem – a monetary union still devoid of sufficient economic union – will be disappointed. Within the eurozone, shifts in euro-members’ competitiveness are still far too disparate for that happen. The challenge is now to make sure the eurozone does not follow Japan and let deflation take root.”
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