The Market’s Support System Is Breaking Down

European Central Bank President Mario Draghi brought out the bazooka on Thursday, cutting interest rates further below zero and announcing a plan to resume quantitative easing by purchasing 20 billion euros ($22 billion) of bonds a month for as long as it takes to reflate the economy. The response from markets was less than appreciative in yet another sign that investors believe central banks are quickly running out of ideas to stimulate flagging growth.

Markets, though, largely did the opposite of what would be expected when a central bank eases monetary policy. Government bonds tumbled, the euro rose the most in more than five weeks against its major peers and gains in the region’s equities trailed the global market for stocks. Sure, there was probably a bit of “buy on the rumor, sell on the fact” aspect to the moves because the ECB had flagged that much of this was coming. What wasn’t expected was the open-ended nature of QE, which should have been bullish for equities and bonds but bad for the euro. And, in fact, that’s what happened — until Draghi made an admission that no investor wants to hear after explaining how the central bank’s policies have prevented the economy from deteriorating even further. “Now it’s high time for the fiscal policy to take charge,” Draghi told reporters. Bonds immediately reversed their gains, the euro shot higher and the Euro Stoxx 600 Index fell from its highs of the day as investors interpreted the remarks as Draghi admitting that central banks have reached the limits of their abilities to sustain economic growth and underpin markets.