How do the markets typically respond to “Draghi days”?

European Central Bank (ECB) President Mario Draghi made good on his November commitment to further ease monetary policy (and responded to this week’s softer Eurozone inflation data) by lowering the main deposit rate 10 basis points and extending quantitative easing (QE) until March 2017. The ECB also widened the scope of securities eligible for purchase, extended a number of refinancing operations until at least end-2017 and announced the reinvestment of principle payments from the asset purchase program.

Lessons from history

The ECB announced its QE program in January but had already used its communication toolbox to signal a waveof loosening measures to support growth and boost inflation.

Thanks to the January “pre-announcement,” the euro and sovereign fixed income market actually moved more in the run-up to the announcement than after it – an example of the adage “buy the rumor, sell the fact.” Conversely, European risk assets like equities and high yield credit reacted most after the ECB press conference with European stocks up 9% 30 days and 9.4% 90 days in the wake of it).

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