European Central Bank to extend QE but at a lower level of €60bn

ECB boss Mario Draghi revealed that the bank’s governing council as chose to keep its interest rates unchanged again in a move widely expected by markets.

The Dow moved higher, as gains in shares of Goldman Sachs and those of Walt Disney, recently trading 1.8 percent and 1.7 percent higher respectively, outweighed slides in shares of Pfizer and those of United Technologies, down 0.8 percent each.

Italy and Spain lead falls in euro zone bonds, with 10-Year yields up 13-14 basis points on the day, while banking stocks in contrast cheered the prospect of an end to relentless low-interest pressure which has been putting pressure on profits.

Regarding non-standard monetary policy measures, the Governing Council made a decision to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. The decision reflects a batch of sanguine economic data out of the eurozone released in recent months, including signs that growth and inflation are finally beginning to accelerate.

It also reflects concerns that the central bank is running out of bonds to buy that fit its criteria for eligibility.

Currently, it is buying 80 billion euro (£68 billion) per month through March.

“The key message is to show that there is no tapering on sight, to show that the European Central Bank will continue to stay in the market and to exert pressure on the market prices, without distorting them”, he told reporters. Its purchases will go from 80 billion euros a month to 60 billion euros a month starting next April.

Stocks rose in response to the ECB’s actions, while the euro fell 1.3 percent against the dollar.

The euro edged up 0.3 per cent to $1.075.

A record peak for Samsung helped lift South Korea 2 percent and Tokyo’s Nikkei gained 1.45 percent as it brushed off a disappointing downward revision to Japan’s third-quarter growth.

“The ECB just surprised by announcing that they will extend their QE (quantitative easing) program by at least nine months, though at a smaller pace”, Carsten Brzeski, a chief economist at ING, said in a note.

Italian prime minister Matteo Renzi resigned after voters rejected his proposed constitutional changes in a referendum on Sunday.

“The ECB has had to buy negative-yielding bonds because it has bought all the eligible higher yielding stuff, so it has no choice”.

The bank also left its key interest unchanged Thursday afternoon, when the bank announced the outcome of its December governing council meeting. She says it’s possible that the European Central Bank could have to increase the pace of the bond buying once again.

On the USA economic front, the Labor Department released a report showing that initial jobless claims pulled back in the week ended December 3rd after reaching a five-month high in the previous week.

Higher oil prices and predictions for more U.S. budget spending are bolstering expectations and 2019 forecasts may show price growth finally hitting the ECB’s target of nearly 2 per cent for the first time since early 2013.

Finally, the European Central Bank has signalled it is looking for ways to lend out more of its bonds to avert a squeeze in short-term funding markets known as repo markets, suggesting more attractive terms to its securities lending programme will be unveiled.