Steroid starved financial markets suddenly found life from promises of more inflationism.
From Bloomberg,
European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc.
“To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate,” Draghi said in a speech at the Global Investment Conference in London today. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he said, adding: “believe me, it will be enough.”
Economists said the comments suggest the ECB may be preparing to unveil new measures to fight the crisis as potential bailouts for economies the size of Spain and Italy threaten to overwhelm Europe’s rescue funds. Spanish politicians have called on the ECB to do more after yields on the country’s bonds soared to euro-era records this week.
Spanish yields slumped after Draghi’s remarks, with the rate on the 10-year bond dropping 32 basis points to 6.98 percent at 1:26 p.m. in Madrid. It touched a record 7.69 percent on July 22. The euro jumped and stocks rose. The single currency climbed as high as $1.2285 after trading at $1.2118 before Draghi spoke. The Stoxx Europe 600 Index (SXXP) gained 1.6 percent.
Bad news once again is read as good news…that’s until markets wakes up to the reality of either empty promises or real action—meant to buy time before the day of reckoning arrives.
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