As a result of the meeting on Thursday, the European Central Bank lowered the interest rate on deposits by 0.1 percentage points, to -0.5%, and began buying bonds by 20 billion euros per month, resuming the so-called QE (quantitative easing) program. This program was completed in December last year, although the head of the ECB, Mario Draghi, has repeatedly stated later that the QE program can be resumed if necessary.
The ECB has softened its current monetary policy to support the weakening Eurozone economy in the face of the global economic downturn and tensions in international trade.
At a press conference after the ECB's meeting on Thursday, European Central Bank President Mario Draghi hinted that the trade conflict between the US and China has a negative impact on the European economy, noting that the balance of risks for the Eurozone’s economic outlook is “still shifted in a negative direction”.
The new quantitative easing program is expected to be "implemented as long as necessary", the ECB said.
The ECB rate cut on Thursday was the first since March 2016, and “until inflation is in line” with the target level, which is just below 2%, the rate will remain low. Now inflation in the Eurozone stubbornly holds around 1%, and the ECB's new forecasts on rates and the QE program can be seen as a signal of a tendency to further soften the policy.
European and world stock indices positively accepted the ECB decision, continuing to strengthen on Friday.
Hopes for progress in negotiations between the US and China, as well as expectations of a Fed rate cut next week, also contribute to the growth of US stock indexes.
Trump criticizes Fed chairman Jerome Powell for his monetary policy in recent months, calling for lower rates to stimulate the economy.
According to Trump, the Fed should reduce the rate by at least 1%. On Wednesday, for the first time ever, Trump called on the Fed to lower rates below zero.
At the same time, data released on Thursday by the US Department of Labor indicated a more significant increase in core inflation than economists had expected. The basic consumer price index rose by 0.3% in August compared with the previous month and by 2.4% compared to the same period in 2018.
The main criteria in determining its monetary policy for the Fed are the state of the labor market, GDP growth and inflation in the United States. It is widely expected that the Fed will lower rates by 0.25%, the second time this year, at its meeting next week. However, the acceleration of inflation may prompt the Fed to report on the limited space for lowering rates in the future.
On Thursday, the Dow Jones Industrial Average rose 0.2% to 27182.00 points, which was the seventh consecutive growth session. The S&P 500 added 0.3% to reach 3009.00 points, while the Nasdaq Composite also rose 0.3% to 8194.0 points.
The yield on 10-year U.S. Treasury bonds rose on Friday to 1.805% versus 1.733% on Wednesday (the yield on debt securities has an inverse correlation with their value), which indicates a greater tendency for investors to buy more risky, but also more profitable stock market assets.
The level of consumer confidence is high, and the income of Americans is growing. American consumers and investors are optimistic about the US economy and the US stock market. Trump, who criticizes Fed chairman Jerome Powell for his monetary policy in recent months, called the 2nd quarter GDP growth “not bad, given the strong pressure from the Fed’s policies that hang around our neck”.
At the beginning of the European session on Friday, futures on the S&P500 index were trading near 3014.0, close to absolute and annual highs at 3028.0. The positive dynamics of US stock indices on the eve of the Fed meeting next week maintains.
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