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Weekly View – The ECB’s last bazooka

Summary:
The CIO's view of the week ahead.Mario Draghi has now done (nearly) all that it takes to support the euro area economy. With only weeks left in his term as ECB president, Draghi deployed almost all that remains in the central bank’s toolkit. Following last Thursday’s meeting, he confirmed not only the expected interest rate cut, but also the relaunch of the quantitative easing (QE) bond-buying programme. He fell short of lifting issuer limits, which markets took negatively. Christine Lagarde, who takes over the ECB helm next month, will need to address this issue in order to sustain this round of bond-buying beyond nine months, as until then, there is a one-third limit on the amount of outstanding bonds the central bank can hold from any single country. For now, Draghi’s last act has

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The CIO's view of the week ahead.

Mario Draghi has now done (nearly) all that it takes to support the euro area economy. With only weeks left in his term as ECB president, Draghi deployed almost all that remains in the central bank’s toolkit. Following last Thursday’s meeting, he confirmed not only the expected interest rate cut, but also the relaunch of the quantitative easing (QE) bond-buying programme. He fell short of lifting issuer limits, which markets took negatively. Christine Lagarde, who takes over the ECB helm next month, will need to address this issue in order to sustain this round of bond-buying beyond nine months, as until then, there is a one-third limit on the amount of outstanding bonds the central bank can hold from any single country. For now, Draghi’s last act has favoured funding for Italian banks, making them more liquid. However, we remain negative on core European bonds for now.

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César Pérez Ruiz, Head of Investments & CIO, Pictet Wealth Management

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