Early in the Summer of 2012, Europe's crisis was re-escalating and spreading broadly to global risk assets. Something had to be done... and so Draghi stepped up with the not one but two 'phrases'... he said "whatever it takes" and delivered the miracle that has become OMT. Since then Draghi has been unwilling (or unable) to provide further color on exactly what OMT is (or how it will work) but as the chart below shows... it worked... and investing public bought the miracle. But, as Bloomberg's Niraj Shah notes, the German constitutional court will rule on the legality of the ECB’s Outright Monetary Transactions program later this year. While the court has no formal jurisdiction over the ECB, a ruling against bond purchases may damage investor confidence on the central bank’s willingness to use OMT.
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The question of course is - what, if anything, will he unveil next week? A new EUR-weakening LTRO? Negative rate warnings?
Source: Bloomberg (@economistniraj)