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European Central Bank Easing, The Devil is in The Details

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When it comes to statements made today by the ECB President, Mario Draghi, the devil is in the detail, or in today’s case the lack of details. Comments made by the ECB President today put bearish pressure on both U.S. equities as well as the precious metals markets, with investors in each asset class focusing on different components of his statement.

According to Reuters, in a press conference the ECB President stated that they are ready to cut interest rates and deliver a “highly accommodative” monetary policy to reignite the euro economy as recent data suggests a quantifiable slowdown in economic growth rather than a rebound.

“(Our) last projections were in a sense suggesting that we might have had a rebound in the second part of the year. Now incoming signs show weaknesses - weakness of growth in the second, in the third quarter as well, so this rebound becomes less likely now.”

The assessment of a slowdown of economic growth in the euro zone was understandably bearish when it comes to U.S. equity pricing today. This news was enough to move prices off of the record highs achieved in the Standard & Poor’s 500 and NASDAQ composite earlier this week. As of 3:50 PM EDT the S&P 500 is still above 3000, it is hanging on to recent gains precariously and after factoring in a decline of almost 14 points (-0.50%) is currently fixed at 3005.48.

During the press conference Draghi spoke about the slowdown in international trade saying, “(Slower growth outlook) mainly reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are particularly affecting the euro area manufacturing sector.”

What is most noteworthy is how the precious metals complex reacted to the information presented today’s press conference. There is usually an inverse correlation between the risk on aspect of equities, and safe haven aspect of gold that would suggest that a statement made by the head of the ECB would be bearish for equities, and bullish for gold.

However, investors and market participants in the precious metals markets needed more than a detailed report of an economic slowdown in the euro zone and commitment to ease the current monetary policy to a much more accommodative stance. The absence of a rate cut announcement today, or at least details and a timeline of upcoming rate cuts by the ECB sent the precious metals lower.

As of 4:05 PM EDT gold futures basis the August contract (which will be replaced by the October contract soon) is down $9.40 and currently fixed at $1414.20. Platinum and silver both declined by over a full percentage point.

While today’s press conference underscored the willingness of the European Central Bank to take a more dovish and accommodative stance in regards to their monetary policy, the devil is in the details, or as today’s reaction by precious metals investors indicated the lack of details.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer