Stock futures declined this morning after the start of the ECB press conference (the first from their shiny new HQ in Frankfurt). Markets were waiting for any sign that the ECB would expand its asset buying programs and begin quantitative easing. Both stocks and bonds rallied in the days prior to the meeting. The ECB disappointed markets by not engaging in a policy of QE; bonds whipsawed higher then lower and the Euro is up against the dollar in the immediate reaction.
Draghi stated on several occasions that in the opinion of the ECB, lower than expected inflation amounts to an unwanted hike in real interest rates. The ECB worried about declines in prices in both commodities (oil has falled 30% in Euro terms) and in services. This was especially true in data from both France and Germany, where the price of services fell the most.
Europe’s oil bill for the last two quarters was around 10 billion Euros, or ~0.2% of GDP. Draghi said that the primary effects of lower oil prices were “unambiguously good” for the economy, but the knock-on effects on inflation expectations could erode any benefits. The ECB was most concerned that long-term inflation expectations would fall from their targets. They worry more about the secondary effects of a decline in oil prices.