Closing summary
Mario Draghi made a market-moving speech this morning, signalling the European Central Bank is ready to cut eurozone rates and start buying bonds again. Markets are now pricing in further stimulus.
Here are the key quotes from his speech at the ECB’s forum on central banking in Sintra, Portugal:
Further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools. And the APP (asset purchase program) still has considerable headroom.
If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfil our mandate — and we will do so again to answer any challenges to price stability in the future.
Draghi’s comments triggered a jump in European markets - in a reversal of earlier losses - with Europe’s STOXX 600 up 1.3% at 383. The FTSE 100 is up 1.4% or 105 points at 7,461.
His comments also triggered a drop in the euro, which angered President Trump:
Donald J. Trump (@realDonaldTrump)Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.
June 18, 2019
Trump has since turned his attentions to China, in more positive comments that are likely to further boost markets:
Donald J. Trump (@realDonaldTrump)Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.
June 18, 2019
In other news, Facebook announced that it intends to launch its own digital currency, Libra, in 2020. Read our full story on that here.
That’s all for today. Thank you for all the comments and please join us again tomorrow.
Wall Street opens higher
The opening bell has rung on Wall Street and US markets are up:
- Dow Jones: +0.6+% at 26,269.91
- S&P 500: +0.6% at 2,907.63
- Nasdaq: +0.9% at 7,916.64
Here in the UK, the once star stock-picker Neil Woodford is under renewed pressure after Fidelity banned its customers from putting new money into a second Woodford fund.
Read the full story here:
Over in the US, house building slowed in May.
Figures from the Commerce Department showed housing starts fell 0.9% to a seasonally adjusted annual rate of 1.269 million homes, amid a drop in the construction of single family housing units.
However, data for April was revised up to show 1.281 million homes were started, and not 1.235 million as initially estimated.
Major boost for European markets after Draghi speech
Markets have received Mario Draghi’s message loud and clear and are now pricing in more stimulus. This is putting a spring in the step of investors across Europe:
- FTSE 100: +1.2% at 7,442
- Germany’s DAX: +1.7% at 12,295
- France’s CAC: +1.8% at 5,490
- Italy’s FTSE MIB: +2% at 21,036
- Spain’s IBEX: +0.9% at 9,211
- Europe’s STOXX 600: +1.3% at 383
Andrew Kenningham, chief Europe economist at Capital Economics, says Mario Draghi was keen to hammer home his message to investors that rate cuts and/or more bond purchases are coming when he spoke earlier in Sintra:
Mr Draghi’s speech at the ECB’s conference this morning is the clearest indication yet that the Bank will cut interest rates and relaunch its asset purchase programme in the coming months if, as we expect, measures of inflation and inflation expectations remain very low.
The media reported that ECB policymakers were “frustrated” that investors did not respond to Mr Draghi’s dovish press conference earlier in the month. So he evidently decided to set out the Bank’s plans in words of one syllable today, and this time investors have taken the hint: the euro and Bund yields fell sharply in response.
Eurozone inflation fell to 1.2% in May from 1.7% in April, final figures from the Eurostat statistics agency showed.
It was the lowest rate in more than a year, and served to strengthen expectations that the European Central Bank will soon inject fresh stimulus into the single currency bloc’s economy.
The US President’s comments come a day ahead of the Federal Reserve’s latest policy decision.
Trump has repeatedly made it clear that he would like to see the Fed cut rates, saying the US economy had the potential to “go up like a rocket” if borrowing costs were lowered.
Thus far Fed chair Jerome Powell and his colleagues on the Federal Open Market Committee (FOMC) have resisted his calls and are expected to leave rates unchanged again on Wednesday.
But for how long?
Ipek Ozkardeskaya at London Capital Group comments:
The Fed will give its policy verdict on Wednesday and is expected to maintain its policy unchanged. However, markets are obsessed with the Fed’s next move, since the Fed Governor Jerome Powell said that they are ready to cut the interest rates, if needed. The Fed expectations sharply moved from ‘patient’ to two-to-three rate cuts within the next twelve months.
Now it is time to see whether Powell meant such a drastic policy shift. One thing is clear, the market is positioned for a dovish Fed. The question is, will the Fed sound as dovish as expected by the market?
Trump adds:
Donald J. Trump (@realDonaldTrump)European Markets rose on comments (unfair to U.S.) made today by Mario D!
June 18, 2019
President Trump slams Draghi's rate cut plans
Donald Trump is not happy about Mario Draghi’s suggestion that the ECB will cut eurozone rates. Specifically, he says the resulting drop in the euro puts the US at a disadvantage:
Donald J. Trump (@realDonaldTrump)Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.
June 18, 2019
Bloomberg (@business)Investors in the euro area priced in a rate cut by the ECB after President Mario Draghi said that the region’s economy may need additional stimulus https://t.co/LGY8Tmg8AS
June 18, 2019
Bart Hordijk, a currency analyst at Monex Europe, says that markets are now firmly expecting a rate cut after Mario Draghi’s comments this morning in Sintra:
The rate cutting genie is out of the bottle for the European Central Bank after Mario Draghi this morning mentioned that further cuts in the policy rate remain part of ECB’s toolkit.
A full ECB rate cut is now priced in by futures markets for 2019 after Draghi showed his concerns about the persistently low inflation in the eurozone and the lingering risks to growth.
Also, the ECB President mentioned there is “considerable headroom” regarding the asset purchase programme, indicating the ECB armoury is far from exhausted.
Euro falls on Draghi's hint at more stimulus
The euro has fallen after Mario Draghi signalled that the European Central Bank is ready to pump fresh stimulus into the eurozone economy, with more rate cuts and/or bond purchases.
The euro is down 0.3% against the dollar at $1.185, and down 0.2% against the pound at 89.28p.
The whitepaper on Libra says it will be built on the foundation of blockchain technology, and outlines just how ambitious the plans are:
People will be able to send, receive, spend, and secure their money, enabling a more inclusive global financial system.
The aim is to make Libra as widely accepted and as easy to use as possible to create a currency that people can use with confidence and convenience in their everyday lives.
Backers include PayPal, Spotify, Uber, Lyft, Ebay, Visa and Vodafone.
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