For a few brief minutes this morning, the world celebrated Mario Draghi's 'surprise' rate cut as just the medicine that an all-time high stock market needs to go even higher. European stocks popped champagne-like (with Italy and Spain jumping 2 to 2.5% on the news), EUR collapsing, and peripheral bond spreads dropping notably. However, as he began to speak and it was clear that growth is not there, deflation is a real risk, and - most importantly - there will be no LTRO anytime soon, market reversed and did not look back. It seems, as JPM warns, an LTRO is no longer likely early next year, and the market appears to be disappointed by that. Of course a few more down 2% days (4% drop from highs) and we are sure Draghi will find a way to unleash more...
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And EURUSD retraced Fob 61.8% of its Draghi losses...
As JPMorgan notes,
We also think that an LTRO is no longer likely early next year, given that the full allotment has been extended to mid-2015. More likely is that the ECB will, at some point, enhance this by offering a few 6-9 month LTROs to ease the transition from the three-year operations.