The ECB action was strong, but analysts are concerned about the details
- The European Central Bank increased its Pandemic Emergency Purchase Programme by a further 600 billion euros (R11.4 billion) on Wednesday.
- Most analysts welcomed the move but noted the ECB's response was more dovish than they expected.
- One analyst said: "With these decisions, the ECB clearly surprised the market on the dovish side, as reflected in significantly lower peripheral yield spreads over bunds" during the ECB's announcement.
- The euro to dollar exchange rate rose 0.8% to a 3-month high to 1.14.
- Markets Insider rounded up some of the most exciting reactions below.
- Visit Business Insider's homepage for more stories.
The European Central Bank announced a gigantic 600 billion euros (R11.4 billion) package to fight coronavirus this week. It means the central bank has committed almost R26 trillion in stimulus action since the start of the pandemic.
While the increase to the ECB's so-called Pandemic Emergency Purchase Programme was largely expected, most analysts were only betting on a R9.5 trillion increase.
Markets Insider has rounded up seven analysts take on what the epic plan means for markets.
Andreas Billmeir, sovereign research analyst at Western Asset
"With these decisions, the ECB clearly surprised the market on the dovish side, as reflected in significantly lower peripheral yield spreads over bunds at the time when the statement was published."
"We think that the surprise was indeed holistic in the sense that the ECB delivered more than the market was expecting on all decisions it took. That said, combining the increase with the extension implies that the purchase rate of sovereign bonds under the PEPP stays roughly unchanged into 2021, so there is no additional "sucking sound."
Mike O'Sullivan, advisor at Rosecut
"Some thought the European Central Bank was going to keep its powder dry given the ongoing rally in European markets, but after firing this shot, there will be little powder left."
"The ECB has thrown the kitchen sink at the Covid-19 pandemic in an effort to stabilize and reignite the Eurozone economy."
Edward Moya, senior market analyst at OANDA
"European stocks dropped after she noted that the ECB hasn't yet discussed adding corporate junk bonds to PEPP."
"The ECB action was strong, but when Lagarde went into the details, investors lost their excitement. Risk appetite lost momentum since junk bonds don't appear to be on their radar, the 600-billion-euro increase was not unanimous and the harsh reality the next major stimulus package needs to come from government leaders."
"Financial markets should overall be happy with the ECB and any weakness should be short-lived and seen as a classic 'buy the rumor, sell the news' event."
Andrew Kenningham, chief Europe economist at Capital Economics
"Coming shortly after the recent moves towards establishing a joint European fiscal response, and Germany's fresh fiscal stimulus announced last night, this should help to sustain the positive sentiment towards the euro-zone for a while longer."
"It also does enough to justify the view that euro-zone policymakers have got their act together, for now at least, in responding to the coronavirus crisis."
Ulas Akincilar, head of trading at INFINOX
"Pumping well over a trillion Euros into the Eurozone economy, over and above its ongoing money-printing program, risks stoking runaway inflation - something the influential Germans have traditionally been allergic to."
"But the Bank's monetary policy grandees have clearly decided that worries about inflation must wait for another day. Now their focus is entirely on seeing off the existential crisis that Europe's looming depression poses."
"In fact, the inflationary blowback from firing the Euro bazooka may even provide a second benefit if it spares the Eurozone from a destructive cycle of stagflation."
"This is Christine Lagarde's 'anything it takes' moment, and the single currency has surged in response to her decisiveness."
Neil Wilson, chief market analyst at Markets.com
"The ECB took three steps: the PEPP envelope is being widened by an additional €600bn to €1.35bn, the scheme will last at least until June 2021 and it will reinvest proceeds at least until the end of 2022."
"This is emergency QE forever - or at least we are in a situation where the ECB has no option but to be on a war footing just to keep the show on the road. What price peace?"
Bas van Geffen, quantitative analyst at Rabobank
"The choice to expand PEPP significantly also affirms the notion that asset purchases have clearly become the bread-and-butter response to mitigate a deteriorating economy or market conditions. With that in mind, we do not rule out another increase towards the end of the year, depending on the incoming data."
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