1) A damp squib. While expectations for yesterday's meeting were not particularly high, they were still higher than what we got. A majority of the sell0side ECB watchers expected at least an extension of QE beyond March of next year. Instead, we got nothing. Not only that, but whenever given an opportunity to drop hints about an upcoming extension/change to the capital key/expansion of the types of assets to be purchases, Draghi played a straight bat and sent the question straight back. Indeed, if one were to take Draghi's responses at face value, you might think that the governing council spent five minutes agreeing to do nothing and then spent the rest of the meeting talking about the upcoming Manchester derby.
2) Passing the baton. Draghi spent more time than usual emphasizing the need for fiscal and regulatory authorities to do their bit. "Structural reform" has been a constant prescription from the ECB ever since Wim Duisenberg first took the mic in 1999, but the current president of the ECB was especially vehement in his call for the politicians to enact policies to boost productivity and ensure growth-friendly fiscal settings (easier said than done in many cases!) In passing the baton, is Draghi tacitly acknowledging the limits to what monetary policy can do? Perhaps, though he seemed overtly bullish on the impact of the unorthodox policy regime, calling upon the most important tool in the central baker's arsenal, the counterfactual.
3) A robust recovery- really? At one point Draghi boasted that the ECB's policies had generated more robust growth than in previous recoveries. While that may be the case if your name is Jose, it's less apparent if your name is Josef, Giuseppe, or Joseph.
4) Accommodative policy across the forecast horizon? Draghi did engage in a little verbal chicanery. While refusing to be drawn on whether QE would be extended further or the capital key altered to permit further buying of bonds currently approaching the limit (though he did note that a task force is looking into the transmission of policy!), he did say that the staff economic projections assumed a continuation of the ECB's accommodative policy across the forecast horizon. Does this mean that they assume the ECB will maintain current interest rates and bond buying through the end of 2018? Inquiring minds want to know. In any event, the strip is flat as a pancake, with no curve whatsoever between June '17 and June '19.
5) Mild disappointment. All in, the market reaction can probably be best characterized as one of "mild disappointment". Neither yields nor the euro rose to raise many eyebrows, and the Eurostoxx barely finished down on the day. This is probably largely a function of the belief that Draghi retains cards in his pocket that he is preparing to deploy come December. A similar meeting outcome then might meet with a stronger reaction. Ultimately, Macro Man sees European bonds as way too expensive to buy and way too frustrating to sell. Keynes' famous phrase about market irrationality has probably never been more apt. Still, if one wanted to play an uptick in Eurozone inflation and an eventual shift in the policy stance, you could do worse that to do so via the Euribor curve trade pictured above. There's literally nothing priced, the flattening has unsurprisingly run out of momentum, and with the ECB possibly more sensitive to the negative externalities of deposit rate cuts the slow-burn potential for an asymmetric payoff looks pretty good.