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Thursday, July 26, 2012 9:12 AM

Market Soars on "Whatever It Takes" Mush From Draghi; Another "Saved Again" Moment

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ECB President Mario Draghi commented in a speech today that the ECB was "ready to do whatever it takes" within its mandate to preserve the single currency.

I have to ask, is that even news? Apparently it it to the stock market which has gapped up over a percent. Bond yields in Spain also reacted to the non-news.

Yield on the 10-year Spanish bond fell all the way (drum roll please) to 6.95%. Is that really anything to be giddy about?

Let's take a look at additional Draghi comments as reported in the Financial Times article Draghi hints at return of ECB bond buying

The euro strengthened on Thursday after Mr Draghi said the ECB was “ready to do whatever it takes” within its mandate to preserve the single currency. “Believe me, it will be enough,” Mr Draghi told a conference in London.

“To the extent that these premia have to do not with factors inherent to my counter party, they come into our mandate, they come within our remit, Mr Draghi said. “To the extent that the size of the sovereign premia hamper the functioning of the monetary policy transmission channels, they come within our mandate.”

“The ECB appears to be keen to increase the threat of the SMP being woken from its hibernation period,” Mr Wattret wrote in a note. “Are the latest comments a signal that the ECB’s strategy is changing and the SMP is about to be used? Or is it merely a threat to act, designed to put some two-way risk back into markets?

“Our inclination is towards the latter conclusion, though today’s comments from Mr Draghi suggest the former now looks more plausible.”

The comments from the ECB president may also increase speculation about other “unconventional” measures the central bank could take. This week Ewald Nowotny, head of Austria’s central bank, said there were arguments for equipping the eurozone’s forthcoming bailout fund with a banking licence so it could tap the ECB for more funds if needed – although he also said the idea was not being actively discussed by the ECB.
Saved Again? Not

How long this round of "we are saved" euphoria lasts over non-comments remains to be seen, but I suspect not long.
Mike "Mish" Shedlock
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