ECB President Mario Draghi just wrapped up his monthly press conference following the central bank’s decision this morning to leave the benchmark refinancing rate unchanged at 0.5% and the deposit rate unchanged at 0%.
European stock markets were in the green pretty much across the board before the press conference began, but now, they’re all in the red.
The London FTSE 100 is down 0.7%, the French CAC 40 and the German DAX are down 0.3% each, Spain is down 0.1%, and Italy is down 1.5%.
Meanwhile, bond yields are blowing out across the euro area.
Yields on Italian and Spanish government bonds are both up 12 basis points, while yields in France are up 8 basis points and German yields are up 5 basis points.
The euro is trading around 1.3160 against the dollar, up 0.5% on the day.
Miller Tabak Chief Economic Strategist Andrew Wilkinson provides some post-Draghi commentary in a note to clients:
Looks like an interesting set-up for early trading in response to Draghi’s commentary. The ECB also boosted its 2014 growth outlook coupled with a downgrade to this year’s pace. The lower implied likelihood of an ECB rate cut is bolstering the euro but is boosting yields. Notably, the yield on Spanish and Italian 10-year bonds is now 10bps up on the day compared to a rise of 2bps for German bunds.
It seems odd that peripheral yields would act so badly to improving growth prospects for next year unless of course spreads relative to Germany closed too quickly in the first place. Keep an eye on German bund yields, which if they reach above last week’s highs, could sandbag stocks by acting in the same heavyweight fashion as the recent recovery rally in the Japanese yen.
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