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Why does the ECB's oversight policy transfer centers through global stock markets




Mario Draghi has mumbled on the damaging side effects of trade tensions and other geopolitical concerns for several months, but the European Central Bank's surprise policy is moving in the face of a slowing global economy that seemed to bring the father home to investors. [19659002] Stocks on Wall Street coincided with European stocks, underlining growing concerns among investors that the weakness of the world economy might turn out to be a drink of US growth.

While analysts had expected the ECB's president to beat a wise note, policy makers went much further than expected. First, the ECB expanded its so-called forward-looking guidance on ultra-low interest rates, saying that it does not expect to begin lifting them at least in early 2020. It is compared to the previous plan to put them on hold at least through the end of this summer . Second, the ECB launched its third iteration of a program of cheap loans ̵[ads1]1; known as targeted long-term refinancing operations, or TLTROs – to euro area banks.

See: Save the & # 39; Japanification & # 39; of Europe, warn ING economists

It all came as ECB staff slashed their macroeconomic forecasts, including reducing the outlook for 2019 gross domestic product growth to 1.1% from a previous 1.7% and signaling that inflation will take even longer for to reach the central bank's targets too close, but just below 2%. Price stability is the ECB's only political mandate.

Draghi's comments on the economy blamed analysts and investors for a downturn in European and, in part, US stocks, but low during the day. The European Stoxx Europe 600

SXXP, -0.43%

index ended 0.4% lower, while on Wall Street, S & P 500

SPX, -0.48%

cast 0.5% and Dow Jones Industrial Average

DJIA, -0.53%

was about 175 pounds, or 0.7%, having reduced 320 points by its increase low. European government bonds rallied and euro

EURUSD, -0.7782%

extended a decline over the US dollar.

Of course, investors knew that the euro area's economic outlook was nothing to write about. The data began to deteriorate last year. And while recent figures have shown some early signs of stabilization, the financial figures have been insufficient so far in 2019. In January, Draghi acknowledged that the risks to the euro area's economic outlook had shifted from "broadly balanced" to tilted to the downside.

But what may be relevant for investors now is that despite Thursday's political measures, the ECB continues to see risks attracted to disadvantages. Draghi himself noted that this was something out of the ordinary. Usually, when the ECB takes concrete steps to increase the economy, it announces that the risk to the outlook has been balanced, he said at his press conference.

So why not this time? Blame the world, at least in part, said Draghi in his opening statement, citing "persistent uncertainty related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets."

While there are homemade factors behind the euro area economy's downturn, including the challenging performance of the German automotive industry, the external factors are mostly down to a decline in world trade thanks to China's own decline and other concerns, including the potential for a slowdown in the United States. Draghi also cited "generally lower confidence produced by trade discussions, let's call them this way. This type of reduced confidence filtering through countries and sectors is an important factor in the downturn in the euro area economy.

Uncertainty about Brexit and worries about emerging markets has also been factors, Draghi said.

While risks can still be charged to the downside, Draghi said the ECB's assessment sees the likelihood of a recession as "very low." And economists do not agree on how to blame the blame for the euro area's slowdown between external and Internal Factors

But the overall tone can further strengthen global growth fear, which was emphasized one day earlier by the Organization for Economic Cooperation and Development, which reduces its global growth after having downgraded its forecasts for almost all groups of 20 country

Opinion: In its latest downgrade, the OECD shows how evd the global economy is

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