Tradeline Financials -ECB Rate Announcement Preview - Week 36, 2014
As Asian and US markets rally and keep close to record highs European markets are cautious ahead of a key speech expected later today in Frankfurt.
The ECB will be making its announcement just after lunchtime today and many expect that there will be little in the way of new policies however there is a chance that Mario Draghi will hint at new measures to keep the markets placated over the next few months.
On the 18th September the ECB opens a special fund which will allow banks to borrow money at minimum rates so long as they lend the funds to businesses or households. The monies, which are available to mainstream banks over the next 4 years is subject to a fixed 0.1% above the benchmark rate. Currently sitting at just 0.15% that makes for an attractive prospect for many lenders yet analysts are unsure as to how many institutes will take advantage of the loans due to the state of the economy in Europe.
The move is seen as a way of introducing cash into the Eurozone and enabling the ECB to avoid deflation.
With the benchmark rate at 0.15%, the EU has been well under the 2% target set for inflation for some time and although the new cheap long-term loans will need to be available so some time before the effects are seen, they could be the start of a QE policy similar to what was undertaken by the Federal Reserve in the US. Any form of asset buying program will be difficult to implement in the EU as all 28 of its members need different levels of assistance and have vastly differing economies. This is one of the main issues which may be slowing down the European Central Bank from entering to such a form of economic stimulus.
By the end of the day the markets will know what the ECB has planned and will be able to start to react accordingly.
No doubt the implication by Mr. Putin in Moscow that peace in the Ukraine could be achieved will help ease the EU indexes and if it does transpire that the crisis is on its way to a resolution then many in Europe will breathe a sigh of relief.
Major Indices as of 4th September 2014:
Hang Seng - 25,249.54 -0.27%
Dow Jones - 17,078.78 +0.06%
FTSE 100 - 6,873.58 +0.65%
DAX - 9,626.49 +1.26%
CAC - 4,421.87 +0.99%
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