The Eurozone is an ocean of economic and political uncertainty. With debate swirling about the possibility of a Brexit on June 23, and ongoing concerns about how best to deal with the debt crisis in Greece, there are indeed many reasons to be concerned. But Mario Draghi is not going to go down without a fight. The ECB chief is focused on reinvigorating the European economy with an unprecedented stimulus program that is bound to have an impact.
So What Exactly is Draghi Doing?
Just recently, Draghi dived into the deep end with corporate bond purchases from Europe’s biggest companies including Telefonica SA, Anheuser-Busch InBev NV, Telecom Italia SpA, Assicurazioni Generali SpA and Renault SA among others. There are scores of other companies across Europe that have been the recipients of ECB ‘quantitative easing’ policies. It is interesting to point out that ECB policy decisions are impacting directly on main street with investors now waiting to take their cues from Mario Draghi’s actions.
On Tuesday 7 June, the average yield on euro notes hit their lowest level in a year at 0.98%. And this is all a direct result of European Central Bank intervention by way of quantitative easing in the bond markets. The fact that Draghi wants to act in a bold way is important: the ECB is one of the most powerful monetary institutions in the world and Draghi’s actions speak volumes. As it stands, the average yield on investment-grade euro-denominated debt is at its lowest level in over a year. So far, the ECB has committed itself to an €80 billion monthly purchase program, and it includes a wide range of assets.
What is Happening with the European Economy?
For now, Draghi is to be believed as he appears resolute about rescuing the European economy. But if consensus forecasts about the scope of the asset repurchases program prove underwhelming then we will likely see a selloff taking place. Presently, the ECB has access to a huge range of assets – 1,049 in total. The value of these assets is in the region of €620 billion, give or take a €60 billion. The next point of call is July 18, 2016 – that’s when the ECBs corporate bond assets will be listed.