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Mario Draghi’s speech at the European Parliament is essentially an exercise in reassurance, because no one – not even the central banks – knows what’s going on at the moment. The market simply doesn’t stay in one place long enough to be prescribed t
he right treatment. So we must wait until March for genuine talk about specifics, and things could well be very different by then. Of course, they could also be exactly the same as they are now!
In December we saw a market watching his every word, with trembling fingers ready to execute reactionary trades in either direction (and boy did they do that). But today, Draghi’s essentially repeated what he said in January – that the ECB is watching things like a hawk, poised to ‘do whatever it takes.’ Don’t worry!
Yet I would wager that markets aren’t going to be at home to any kind of surprise unless it’s a positive one, and that includes a ‘surprisingly not as uber-dovish as markets had hoped’ surprise. With an Italian banking sector on the brink of collapse (unless the ECB steps in to buy all their non-performing loans), Draghi looks caught between a decisively rocky rock and a really rather rigid hard place.
Augustin Eden, 15 Feb
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