Börse & Märkte

ECB's surprise rate cuts propels stocks and bunds but slaps the euro

ECB just made a surprise move by cutting the benchmark interest rate by 25 basis points to 0.25%, a record low. ECB clearly addressing falling inflation across the euro zone. Stocks rally hard – DAX up 100 points, EuroStoxx50 jumps up 34 points. Bunds move sharply higher while the euro slumps – big surprise.

Although there were expectations for a rate cut today, most ruled it out, anticipating the central bank to hold fire until perhaps December. So, inflation dropping to 0.7% certainly acted as the catalyst in the ECB’s thinking. 0.7% was much lower than expected [ECB target rate of 2%] prompting many scrutinize the ECB for not doing enough.

ECB Chief Mario Draghi today showed he is quite different from former ECB head Trichet, pulling out a surprise like this from time to time. High unemployment in the region also another likely contributor to today’s rate cut – markets are now eyeing Draghi’s press conference for further insight into the decision. The tone of the conference is likely to be dovish with Draghi justifying the move which has knocked the euro currency sharply lower against rivals.

A big question for the market is how effective is this rate cut really? Conditions in the euro zone are likely to see a meaningful change after this rate cut – it seems more of a demonstration by the ECB to move away from liquidity pumping measures to measures which will ensure sustainable growth feeding into the real economy. The move therefore could be more symbolic of the ECB’s evolving strategy to stimulate the euro zone economy. Earlier, the BOE kept policies unchanged, as expected – muted response in markets. Eyes are now firmly on Draghi for more followed by the US 3Q GDP release and Twitter’s IPO debut with the shares priced at the top end at $26.