Super Mario's Bond Buying Proposal Gave Investors What They Wanted
Super Mario can almost lay claim to his name after announcing his plans to 'do whatever it takes' to save the euro.
The bond buying measures proposed yesterday
were largely expected, however investors really wanted to hear it from the man himself.
He will have appeased the Germans to some extent, but more than anything he gave the markets a significant boost. A buying frenzy ensued throughout the afternoon and continued into the US session, where the Dow headed straight for the highs and stayed there.
By and large, CFD investors
seem to have got what they wanted; a clear and decisive plan from the ECB.
A minor issue for them is the conditionality that comes with the plan. Since Spain and Italy haven't received formal bailouts yet, they cannot benefit from these measures unless they can prove that they are taking the necessary measures to tackle their deficits.
However, the main question is whether this form of central bank QE will actually work. There have been numerous debates about whether the previous stimulus packages implemented by the BoE and Federal Reserve have been a success.
There's no question that the recession would have been far deeper and more prolonged without QE. However, given the sums of money that have been thrown at the problem, there are understandable concerns over just how much bang we've got for our buck.
The UK is a case in point; interest rates for the sovereign may be at historical lows, but normal commercial and mortgage rates continue to creep higher.
In addition, the UK's QE has had little impact on business productivity, as the economy remains gripped by a chronic lack of confidence.
Time will tell whether the ECB measures are enough to spur growth, as they certainly aren't a quick fix to save Europe's banks.
The bulls were undoubtedly in charge yesterday, as momentum also came from the far better-than-expected US ADP private payrolls.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Simon Denham, 7 September 2012