European markets initially couldn’t make up their minds about today’s ECB rate decision, and while the banks liked the fact that the pace of asset purchases was slowed, and the pool of assets extended, sending yields higher, the euro didn’t like it so much, sliding sharply after initially spiking higher.

In the end equity markets liked what they heard and moved higher accordingly, extending this week’s gains and making new multi month highs in the process, with the FTSEMib hitting its highest levels since May, and the German DAX breaking through 11,000 for the first time since December last year.

Today’s decision proved to be a classic case of euro fudge as the bank extended its €80bn QE program beyond March next year, but cut the monthly amount to €60bn from April 2017 until the end of the year, in essence arguing that they have extended the program, but also reflecting the fact that deflation was no longer a major concern.

In essence all they’ve done is reduced the monthly asset purchase amount back to the levels it was in March this year, when deflation was still a worry, and now that rates are rising again have pulled it back down again in a move akin to dabbing the brakes on a speeding motor car.

More importantly the ECB changed the limits to their bond buying program by saying that they would buy bonds below the -0.4% deposit rate if the situation warranted, as well as widening the pool of available assets to include 1 year to 30 year bonds, while keeping their options open with respect to adjusting the pace of the monthly program.

While the European banking sector has seen a sharp move higher on today’s shift as yields on government debt have risen, this will be a double edged sword for indebted European governments, particularly Italy that has a large stock of government debt that will need rolling over next year, and is likely to face much higher rates if these yields are maintained.

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