Markets Move as the Mighty Draghi Flexes ECB Muscle

September 6, 2012 12:05 PM EDT
With the fate of the Euro hanging in the balance, and despite numerous objections from German politicians and criticisms by Bundesbank, Mario Draghi largely delivered during his remarks today following an ECB meeting in Frankfort. The ECB president made bold comments earlier this year when he vowed to preserve the Euro. He followed up on the promise today when he announced an unlimited bond-buying plan that will target distressed debt in the euro zone.

Investors were deeply interested in the details of the plan and how exactly the ECB will execute the transactions, and Draghi was happy to answer them, going into basic detail about "sterilization" and the effect the plan will have on markets. However, many believe the major takeaway from today's meeting isn't the details, it is Draghi. He has emerged as a powerful leader in the euro zone with the ability to get the job done.

"In order to restore confidence, policy-makers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building," argued the ECB president. "At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist."

In other words, he and the rest of the ECB members stand ready to buy bonds and take further action in support of the Euro. So far investors have shown little interest in standing in their way. It remains to be seen how long this will last, but it is clear that the ECB has won the day. Tomorrow could be a different story.

Stocks in the U.S. are surging on the Draghi comments, and a better than expected ADP employment report and ISM Services report.

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