Mario Draghi, the renowned president of the
European Central Bank, has already been “Super” once. In 2012, “Super
Mario” staved off disaster as he convincingly announced that the European
Central Bank would do whatever it would take to preserve the Euro currency. His
decision managed to reassure investors and largely helped send interest rates
lower in tumultuous times, particularly in countries like Portugal, Spain and
Greece. But 2014 is a different ball game all together. The Euro Zone is
imperilled with the threat of deflation. Europe’s current inflation is at 0.5%,
which is below the 2% that bank officials want. So the question beckons: Can
Mario be “Super” again?
On Thursday, Draghi announced an unprecedented
round of measures to help the impeding dilemma of deflation. The ECB cut its
deposit rates to minus 0.1%, becoming the first major central bank to take one
of its main rates negative. Draghi says that the ECB aims to introduce new
“targeted” offerings of liquidity to banks in order to encourage them to lend
money to the real economy. As part of this, Draghi mentioned that a low
interest rate of 0.15 would come attached with conditions of requiring banks to
use borrowed money to make business loans. Long term loans to banks at low
interest rates would extend until 2018. Draghi also hinted at the
implementation of a program which would buy some type of asset-backed
securities that would drive lending to small businesses. Lowering interest
rates was not the only memorandum on the agenda, the ECB announced that it will
also begin charging interest for holding money in deposit accounts.
Following the announcement on Thursday, the
S&P/TSX composite index dropped 60.07 points to 14,736.72. The Canadian
Dollar went down 0.07 of a cent 91.35 cents US. The Dow Jones industrials
dipped 8.48 points to 16,729.05, the Nasdaq was 6.12 points lower to 4,245.53
while the S&P 500 index lost 3.32 points to 1,924.56. On a brighter note,
we look ahead to the other significant economic event of this week: the release
of the American government employment rate for May. Fortunately, economists
have predicted that an estimated 219,000 jobs were created during May following
a much stronger than expected 288,000 gain in April. For us here in the North,
economists are forecasting an estimated 21,000 jobs that were created last
month following a loss of 29,000 in April.
Disclaimer: This article was posted with the permission
of a third-party contributor and the opinions contained therein do not
necessarily reflect those of Smallcappower. Smallcappower does not endorse
any investment advice provided by these third-party contributors. Please
consult your investment advisor before making any investment
decisions.
Ubika Corporation and its divisions Smallcappower, Ubika
Communication and Ubika Research are not registered with any financial or
securities regulatory authority in Ontario or Canada, and do not provide
nor claims to provide investment advice or recommendations to any visitor of
this site or readers of any content on this site. – See more at: http://www.smallcappower.com/pages/small-cap-power-disclosure
