As expected, and long anticipated by many market participants, the ECB announced a €1.26tn QE plan, committing to asset purchases totalling €60bn per month until September 2016. Announcing the plan at a press conference in Davos ECB president Mario Draghi stressed that the significant increase in the central bank’s balance sheet will ease the facilitation of lending in the eurozone. Also as expected the ECB left the main refinancing rate unchanged at 0.05%. The eagerly awaited decision had long been rumoured in the marketplace and saw the euro, which had traded tentatively either side of 1.16 against the dollar in the run up to the decision, immediately slipped back to 1.1510 as the single currency slipped 0.8% on the news. Volatility increased as Draghi took to the podium to deliver further details with swings in the euro recovering back up towards 1.1580 before selling off lower, swinging below 1.1500 as investors assessed the implications of fresh QE.
The announcement was a boon for emerging market currencies as investors speculated that some of the €60bn a month asset purchases would find its way to high yielding markets. Strong gains in the BRL, ZAR and TRY as well as RUB all against the euro acted as an optimistic precursor to further flows into emerging market equities throughout 2015. The Brazilian real gained over 3% against the euro today while the South African rand and Turkish lira added as much as 2.3% and 2.44% respectively. The rouble, after weakening considerably throughout 2014 as economic sanctions were imposed gained almost 3% against the euro.
Benchmark equity indices were well supported across Europe today, with London’s blue chip index pushing higher for the seventh straight session adding over 6.4% during the recent rally. Eurozone stock indices were also posting strong gains, with the DAX and CAC experiencing firm buying activity immediately after the announcement. US macroeconomic data offered further encouragement to risk assets, with initial weekly jobless claims dropping from a seven month high, to 307K during the week ending January 17th from 317K the previous week. At the time of writing, both the S&P 500 and DJIA were trading between 0.4-0.5% higher while the dollar index rallied to fresh high of 93.570, adding 0.69% throughout the day.