Mario Draghi said the European Central Bank will investigate fresh stimulus measures to boost the economy and that options include a further reduction in the deposit rate.

The euro slid as the ECB president said the Governing Council has tasked the central bank’s committees with examining the pros and cons of different monetary-policy action. He told reporters at a press conference after the meeting in Malta on Thursday that there was a “rich discussion” about the instruments that might be used, while hinting fresh stimulus may be added before the end of the year.

“The degree of monetary-policy accommodation will need to be reviewed at our December meeting when new macroeconomic projections will be available,” Draghi said. “We want to be vigilant, as people used to say in the old times.”

David Fuller's view

Mario Draghi was predictably reassuring in his skilful presentation today, without alarming listeners.  Note from these initial comments: the ECB has plenty of options; the degree of monetary policy accommodation will be reviewed in December (meaning a measured rather than panicky approach); the global economic slowdown is a consideration (implying the EU is not doing too badly). 

In other words, Draghi is in charge and he will do whatever it takes.  Those last five words are Draghi’s own from earlier comments and this has been his stance since finally winning his historic battle in the EU’s Governing Council to commence QE, exactly nine months ago despite strong opposition from the Bundesbank.   

While Draghi’s comments were not unexpected, this is exactly what stock markets were waiting for, enabling those of Europe to resume their recoveries, as you can see from The Euro STOXX 50 (weekly & daily) and Germany’s DAX (weekly & daily).  The Euro has been kept in check at $1.15 (weekly & daily), the Dollar Index (weekly & daily) reaffirmed support from the lower side of its consolidation range, while Wall Street moved closer to its highs, led by the Nasdaq 100 (weekly & daily) and the S&P 500 (weekly & daily).

Incidentally, Investors are more conservative following significant stock market corrections.  Note how the previously high-flying Nasdaq Biotech Index (weekly & daily) is now underperforming.  I do not doubt that many of its leading companies have outstanding futures, but the sector was the last to peak and among the few that actually broke their August 24^th lows.  A lengthy reaction and consolidation cannot be ruled out but that would eventually create another excellent buying opportunity.    

(See also: Five Questions for Mario Draghi on Inflation, the Euro and QE)