Stimulus rumors are permeating Wall Street yet again, but this time they’re coming from the eurozone. During today’s European Central Bank policy meeting, bank president Mario Draghi pledged that policymakers would remain accommodative as economic growth in the currency bloc remains anemic.
More specifically, Draghi made it clear that the ECB is ready to fire (again), as he stated:
“Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.”Call it you what you will, we have ourselves the “Draghi Put” in effect and keen investors know to take advantage of it.
What Is the “Draghi Put”?Let’s take two steps back to explain. In finance, the term “put” refers to an option contract that gives the stock owner the right to sell his or her shares for a predetermined price; think of this as an insurance policy on your shares in the event of a steep market decline. Second, critics of the quantitative easing at home have long called the unprecedented loose monetary policy the “Bernanke Put”; in essence, this term has been used to describe the fact that the central bank is willing to do whatever it takes to keep equity markets afloat by promoting a risk appetite through low-rates and stimulus.
Now that the ECB is affirming its accommodative stance in the face of Japan’s surprise stimulus announcement last week, we have ourselves the “Draghi Put.” In other words, while the eurozone is undeniably
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