Market News & Analysis


Top Story

ECB Preview: Mario Draghi’s Last Policy Decision

After eight years at the helm, today will be the last time we will see Mario Draghi deliver a press conference following the European Central Bank’s monetary policy decision. At the time of writing at midday in London, the euro was trading lower ahead of the ECB and as the markets awaited the EU’s decision on whether to extend the Brexit deadline to January 31. European stocks were higher, following on yesterday’s rebound on Wall Street.  

The outgoing ECB President Mario Draghi is almost certain not to announce any new changes following last month’s rate cut and QE relaunch, but the Italian will face some pressing questions - make no mistake about it. Last month’s moves to cut rates further into negative and restart bond-buying has proved controversial to say the least, with the ECB’s Governing Council being split about the decision: the heads of the German, French, Dutch and Austrian central banks have all voiced opposition against parts of the package.

But Mr Draghi will no doubt try and make a strong plea in support of the stimulus package and spend a bulk of the time explaining and justifying that decision. With the eurozone economy continuing to weaken, it is probably going to be easier for him to make a strong case for the need to keep policy extraordinarily loose compared to, say, the Fed’s Jay Powell.

Indeed, the latest Eurozone Purchasing Managers’ Index (PMI) data released this morning showed German manufacturing activity contracted again in October while growth in the services sector slowed down further. However, there was good news from France, where both sectors expanded – but only just in the case of manufacturing. However, this was not enough to lift the Eurozone manufacturing PMI average out of contraction, as it remained at 57.7 in October.

Overall, with the Eurozone inflation dropping to a three-year low of 0.8% and well below the ECB’s 2% target, and GDP annual growth rate at just 1.2% and falling, Mario Draghi will depart at a time when the economy is slowing down.

But it is not fair to blame Draghi or the ECB for the slowdown. Clearly, monetary policy alone is not enough to support a fragile economy. Draghi may once again call for looser fiscal policy from European governments – especially with Brexit and US-China trade spat still fully unresolved – although it is likely that his pleas will fall on deaf ears.

Some would argue even that the ECB under Draghi’s leadership has helped to prevent a bigger slowdown – or a depression, even – following its decisive actions at the height of the Eurozone debt crisis. But deep down, Draghi will probably feel a little more frustrated than he would have liked knowing that his actions have not been enough to stimulate growth. So, he will depart with mixed feelings and his successor Christine Lagarde will no doubt have a lot of work to do.


Source: eSignal and City Index

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.