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Investors welcome ECB’s “outright monetary transaction? details

A major risk-on rally was initiated today following the much anticipated press-conference from the ECB. Although being telegraphed by news reports yesterday, the market learnt more details of the central bank’s bond buying plan. Mario Draghi outlined the features of the imaginatively named “Outright Monetary Transactions”, which will have no ex-ante (predetermined) limits in effect making it unlimited, and will be conditional on the struggling nations request to the ESM/IMF for aid. It was also confirmed that the bond purchases would be sterilised, i.e. paid for the sale of other central bank assets, and as such would not result in an increase in the money supply, a major concern of the German Bundesbank. The bond buying would be focussed on the short end of the yield curve, more specifically the government debt maturing within three years.

Markets began the day almost a percentage point above yesterday’s close, and added a percent or more following the press conference in the early afternoon. High beta stocks were in demand, with the miners and banks leading the FTSE 100 higher. Among the gainers was Whitbread Plc, the owner of Premier Inn hotels and Costa coffee shops, following an update on trading conditions to mid August. The results showed strong trading across all divisions, in particular the Costa division. Share were top of the FTSE 100 board pre ECB conference, before being overtaken by some of the more volatile stocks such as Evraz and Lloyds which were up around 7%. Whitbread closed 5.3% higher at 2210, with the FTSE itself putting on 119 points (2.1%) at 5777. This was an underperformance compared to its European peers, with the Spanish IBEX up almost 5%, and France and Germany closer to 3%.

This was posted in Bdaily's Members' News section by James .