After Mario Draghi's impassioned guarantee to do "whatever it takes to save the euro," equity markets around the globe initially rose in eager anticipation of the breathtaking new plan to rescue the troubled European sovereign debt markets.
Unfortunately, today's announcement of possibly buying a few Spanish and Italian bonds on the margin in the next month or so, which by-the-way Germany does not support, was not exactly "whatever it takes to save the euro."
Spanish yields jumped from 6.61% yesterday to 7.25% today. Yields in Italy rose from 6.02% to 6.33%. Here was the equity markets' response in Europe and in the U.S:
- England -0.88%
- Germany -2.20%
- France -2.68%
- Italy -4.64%
- Spain -5.16%
- U.S. (S&P 500 ) -0.75%
Consistent with the risk-off trade, commodities were also down sharply, the US dollar was up, and US Treasury bond prices were up.
Draghi would have been better off not making bold promises without the ammunition to back them up. That would have been much better than sacrificing what little credibility remains with Europe's policy makers
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