Over six years after “Helicopter” Ben Bernanke first showered the US economy with electronic money, the European Central Bank has finally engaged full blown Quantitative Easing. With the PR machine working perfectly, Mario Draghi was able to announce a programme of €60 bn asset purchases per month over an 18 month period (leaks had suggested €50bn over 2 years) to ensure the market was duly impressed.
After initial contemplation during the press conference, traders gave Draghi full marks (euro down, sovereign yields down, stocks up). Historically, QE has been excellent for equities and has been able to pull interest rates lower. But with the yield curve on German debt already significantly flattened in the past few months (maturities up to the 5 year Bobl already yield negative), it will be interesting to see how much is already priced in; also whether the impact is felt in the real economy and the transition mechanism feeds through to the man on the street.
Immediate concern though lies with how traders react to news that elections in Greece have been won by the anti-austerity Syriza party. This victory which could ultimately result in a default on over €300bn of debt with a potential first exit from the Eurozone. Reaction to a possible “Grexit” could shape markets this week .