Draghi Drags Down Rates
From Central Banks in the US to Central Banks in Europe, one shows another how it’s done. President Draghi has declared a cut to interest rates in the Eurozone as early as July, sending ripples through the markets.
European countries in the Eurozone share a single European Central Bank (ECB). In the past, the continent has coped with economic fallout by lowering interest rates. Investors face several uncertainties in Europe and around the world, waiting and hoping for an interest rate cut to boost markets. Until last night, when the Central Bank’s President Mario Draghi legitimized market sentiment. He teased investors with a rate cut if inflation continues going the wrong way.
This is good for stocks and bad for bonds. Bonds are a popular investment right now, countering stocks with fixed income for lower risk. Investors who flee to bonds will profit from interest set at a rate governed by the Central Bank. The German 10-year Bund yield took a tumble in response to the comments from Draghi, while stock markets as distant as the S&P 500 celebrated the cut talks. The US awaits its own policy decision today.
Central Bank. The German 10-year Bund yield took a tumble in response to the comments from Draghi, while stock markets as distant as the S&P 500 celebrated the cut. The US awaits its own policy decision today.
Championing the ECB, Draghi simply said it would do what needs to be done. Set to leave his post in October, the Italian has made remarks before that European governments need to lend a hand sometimes and “reinforce their efforts” to improve economies. Some believe ECB stimulus is overrated, and couldn’t stimulate the markets in a recession anyway! Time will tell if the ECB has enough in its locker to keep Eurozone economics on track.
