State Street Market Commentary on European Central Bank’s Monetary Policy Meeting

In reaction to the European Central Bank (ECB) meeting today, Timothy Graf, head of macro strategy at State Street Global Markets and Brendan Lardner, senior portfolio manager for global active fixed income at State Street Global Advisors, offer their views.

Graf commented: “After a recent flirtation with more upbeat rhetoric, the dovishness of ECB president, Mario Draghi and company comes as a surprise. Below-target inflation always meant tight policy was a long way off, but some hint of extraordinary easing measures coming to an end was a reasonable expectation given the strong tone to Eurozone data. European markets should like the news and we look for the recent underperformance of peripheral bonds to reverse. The trade-weighted euro also has ample room to test lower and retrace a portion of its 5 percent gain over the last quarter.”

Lardner commented: “After ECB president, Mario Draghi surprised the market with a more hawkish commentary at the Sintra Forum in June, today’s meeting unwound some of this sentiment with a more dovish tone. While Draghi had raised the prospect of potentially removing some extraordinary policy measures in the not too distant future, today’s meeting seems to have again focussed on the subdued inflation pressures in the Eurozone and the need for ongoing policy support. The ECB will have also been cognisant of the downward pressure an ongoing rise in the euro could have on future inflation readings. While the ECB waits for more data to support a tapering of asset purchases, risk assets should receive some support while the recent strength of the euro has scope to correct somewhat.”