PARIS (MNI) – “Disappointing” was the common theme of many
analysts’ reaction to ECB President Mario Draghi’s press conference
Thursday, at which conditions were laid out for eventual bond market
intervention to lower borrowing costs in countries facing market
pressure.

Taking their cue from initially negative market reactions, many
analysts argued that Draghi had not delivered on his pledge that the ECB
would do “enough” to protect the Eurozone from implosion, that details
on the size and timing of any intervention were lacking and that
conditionality could prove counter-productive.

Peripheral bond yields rose, stock prices fell and the euro
slipped to a one-week low. Spain’s 10-year bond yield, which fell to a
low of 6.61% before Draghi began to speak, rose to 7.03% by the end of
the press conference. Italian 10-year yields, which had declined to
5.73%, ended the day at 6.22%. Spain and Italy equity markets each lost
about 3%.

Yet some analysts were more positive, arguing that Draghi
had opened the door to a further cut in interest rates and that the
conditions posed for government bond purchases were necessary to
maintain the pressure on politicians for necessary reforms.

Following are excerpts of analysts’ comments:

MARIO GRUPPE, Norddeutsche Landesbank: “Draghi’s remarks today were
disappointing. After his forceful remarks last week he did not follow
up with the expected action and the markets reacted accordingly. Given
that, it helped little that he made a vow of fidelity to the euro
towards the end of the press conference. In the end, this was all quite
wishy-washy today.”

JEAN CHRISTOPHE CAFFET, Natixis: “Today’s announcements by the ECB
are not good news for sovereign bond markets and could therefore
exacerbate market tensions in the short term. The ECB is clearly buying
time and is still pushing EU governments to activate the EFSF… which
is a rather dangerous game as Spain and Italy will probably favour ECB
interventions as any EFSF support is backed by further fiscal
conditionality. The Securities Markets Program may however be
reactivated in the very short term. The fact that the ECB said it will
focus on short-dated bonds could trigger further curve steepening in
Spain and Italy.”

KEN WATTRET, BNP Paribas: “The markets’ response to the press
conference is very negative, which is no surprise on the basis of the
failure to live-up to the comments made by Mr Draghi in London a week
ago. The bar had been well and truly raised and the ECB has
under-delivered….The conditionality is key. So the governments have to
request the assistance to set the wheels in motion. The worse the
adverse reaction in markets, the more likely the politics will fall into
place. The problem is, of course, the stress in markets and ongoing
uncertainty in between times. The ECB could have sweetened the pill of
no action on debt purchases today with a few other initiatives but opted
not to. This is compounding the sense of disappointment. There was a
reference in the Q&A to other things the ECB could do, including LTROs,
collateral requirement changes etc, and a hint towards something coming
in September. On policy rates, there was a comment in the Q&A to it “not
being the time” for further action. This suggests that our call of a
move in September holds together, for the refi rate at least, in tandem
with the new staff projections.”

VIOLA JULIEN, HELABA: “The expectations in the run-up to the press
conference were extremely high so that Draghi actually had to disappoint
them. Market participants almost believed in a massive intervention of
the ECB. Obviously, the remarks by Draghi then weren’t enough for most
of them, which you could also see in the reactions of the markets. It
was too vague, it simply lacked details.”

CARSTEN BRZESKI, ING: “The ECB did not deliver the big bazooka some
market participants had hoped for….Clearly, today’s press conference
was a cold shower for these expectations. The ECB did not present any
new measures. In fact, ECB President Draghi stressed the well-known ECB
stance that monetary policy could not solve the Eurozone debt
crisis….However, Draghi’s comments also made clear that the ECB will
not leave Eurozone governments standing alone in the rain. How? The ECB
implicitly announced an SMP 2.0….It is obvious that the ECB will stick
to a principle of strict conditionality. Unlimited bond purchases,
therefore, look highly unlikely. However, combining conditionality to a
measure which is officially meant to tackle problems with monetary
policy transmission sounds somewhat contradictory. What do we make of
all of this? One, a rate cut at the September meeting looks highly
possible. Two, the ECB will not engage in any ground-breaking measures
like unlimited bond purchases. Three, ECB liquidity access for the ESM
is out of the question right now but has not entirely been ruled out if
the structure and tasks of the ESM have changed. Four, the ECB will
stick to a principle of conditionality. For governments this means that
they can only expect some ECB support if they send an official request
to the EFSF/ESM.”

GARETH ANDERSON, RBS: “It was a strong message but couched in what
had been the standard line up until last week.” Draghi made clear the
ECB “will not get in front of politicians. They will respect
conditionality. It’s an uncomfortable message to give to the market, but
I think it’s a rational, sustainable message.” Draghi did signal “there
is a real commitment there to act, and [is] opening the door to some
things that had seemed closed,” regarding issues of seniority,
non-sterilized asset purchases. “Reading between the lines of where they
could end up, I thought there was a positive message there.”

CHRISTEL ARANDA-HASSEL, Credit Suisse: “It obviously was somewhat
disappointing that nothing was going to happen imminently. At the same
time, the ECB is committed toward getting yield levels at least in the
periphery countries back to a more sustainable level, at least in the
short end. The other big, big important bit is that they are going to
address the seniority issue. If we were hoping yet again for the big
bazooka, that was not delivered. The ESM is not getting a banking
license or anything along those lines for the time being. The market
always wants to see things happening ASAP, but Draghi is firmly, firmly
leaving the ball in the court of the politicians. Therefore, things are
not going to happen necessarily imminently. Then again, they don’t have
to. Spain at least will not come back to the market until next month.”

JOERG KRAEMER, Commerzbank: “At today’s meeting the ECB
disappointed those who had hoped for the Big Bertha to fire immediately.
Instead, the ECB wants the problem countries to first turn to the
EFSF/ESM bailout fund. Only then the ECB is prepared to resume
government bond purchases. Furthermore, ECB president Draghi said the
ECB is against lending to the ESM. We, however, do not rule out that the
peripheral countries in the end succeed to give the ESM access to ECB
money. Furthermore, we continue to expect that the ECB cuts rates early
next month. Overall, we feel comfortable with our bearish EUR-USD
forecast.”

RAINER SARTORIS, HSBC Trinkaus: “The markets have been disappointed
by Draghi’s remarks. They had simply hoped that the ECB would announce
directly today that they will start a bond purchasing program. Still, the
ECB has not shut the door on bond purchases. To the contrary, it has
opened it very wide. In the end, I think the ECB is doing the right
thing in demanding that governments should be on board. That is the
message of the ECB: ‘We are ready, we want to help, but we are not
willing to carry the responsibility alone.'”

HUW PILL, Goldman Sachs: “In the end, today’s much anticipated ECB
Governing Council meeting failed to deliver the clarity, immediacy and
decisiveness of action that some had hoped for. Nonetheless, we see the
announcements made as in the right direction: the ECB has declared a
willingness to mobilise its balance sheet to underpin the euro and
maintain monetary policy transmission, but only under conditions that
push governments to pursue the necessary fundamental changes required to
make the euro area workable over the medium term.

MARCO VALLI, UniCredit: “Amazingly, apparently, the ECB will now
identify the specific conditions for other governing groups’ actions
before it will contemplate interventions to restore the transmission
mechanism of monetary policy….But will this new regime then
potentially allow yields to move into, say, double-digit territory for a
while, and maybe force a default on a country? Or will it be an
effective negotiating instrument with which the EFSF (and de facto the
ECB) sets policy conditionality? Or will it all be a fig leaf for
interventions if markets become even more dysfunctional, but political
reality in a country prevents further policy measures? Where does
today’s statement differ from Draghi’s speech last week? Only in as much
as the ECB has now started to identify what ‘within its mandate’ means.
But we, for one, had never dreamt that this would have to be specified
via committee work etc, rather than judgment calls. It seems to us that
the ECB has left more questions than answers on the table.”

–Paris newsroom, +331 4271 5540; Email: ssandelius@marketnews.com

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