European Crisis: Draghi Details Bond Market Rescue as BoE, ECB Hold Rates Steady

• European shares rise as markets absorb detail of ECB's bond market programme

• ECB holds key lending rate unchanged at 0.75 percent

• BoE holds key rate QE programme steady

• Sweden's Riksbank lowers key repo rate 25 basis points to 1.25 percent

OECD trims G-7 growth estimates: sees full-year recession for Britain

1540 BST: Dow Surge

it's hard to disentangle European stock market reaction to the Draghi OMT plan with what we're seeing in the United States. The Dow Jones Industiral Average is up more than 200 points (1.7 percent and within 15 points of a 2012 high) today after better-than-expected figures on private payroll addtions (+201,000) and the ISM Non-manufacturing sector PMI (53.7: beating the Street by a full 1.2 points). The S&P 500 is up 1.7 percent (24 points) to 1,427.08

1500 BST: Market reaction

Stocks in Europe are broadly positive - although cautiously - in the wake of Draghi's "OMT" detail. That said, peripheral markets have bounced with a bit more conviction: Spain's IBEX is up 3 percent and Italy's FTSE MIB up 2.5 percent.

The single currency is on the back foot - 1.2575 - and Spanish yields continue to improve. Credit default swaps on Spanish debt have also fallen more than 30 basis points to below 400 basis points for the first time in six months, according to Markit data.

However,

1430 BST: Presser wraps up

Still feels as though there are more questions (for example, could the OMT incentivize nations to issue very-short term bonds in order to take unfair advantage of ECB purchases) than answers. Still, Draghi delivers (for him) a rather forceful case for a programme that one doesn't get the sense he truly believes in ... that's not to say he doesn't think it will work, only that it seems to challenge much of his original orthodoxy.

1410 BST: Spain's Rajoy - no comment

Spanish Prime Minister Mariano Rajoy, currently hosting German Chancellor Angela Merkel, says he has not yet read Draghi's statement on the OMT and offered no comment as to whether Spain would seek a full EU/IMF bailout in order to receive the bond market support of the OMT.

1400 BST: Independence

The biggest take-away so far, in my view, is the question of central bank independence and its active dictation of *fiscal* policy in sovereign nations.

If the ECB can - and will - dictate the terms under which it will support bond market activity based on the conditionality of fiscal actions (ie asking for EU/IMF assistance) have we crossed a Rubicon of democracy that had heretofore remained intact?

That question was put to Draghi ... he didn't really answer it.

1345 BST: OMT

Outright Monetary Transactions (OMT) ... that's the name of the ECB's bond buying programme. It's unlimited (as expected) and tied to strict conditions (nation's must be involved in an EU-led oversight programme in conjunction with the IMF) and will possibly include those nation's already under rescue (ie, Ireland) which are close to re-entering the bond market.

There will be no "seniority" of the ECB's bond purchases over those of private creditors and details of the buying will be published on a weekly basis.

... more to come

1340 BST: No dealy to Draghi statment

At least not by the fire alarm: he was, however, annoyed by the photographers!

First phase of comments focused on ECB staff projections for GDP and Inflation: Growth forecast for 2012 trimmed to -0.6 percent to -0.2 percent (from -0.5 percent to +0.3 percent). BIG range on GDP for next year: -0.4 percent to +1.4 percent.

Inflation expected to pace at 2.4 percent/2.6 percent this year and 1.3 percent/1.5 percent for next year.

1315 BST: US employment figures

The private survey of US job creation in August from payroll data provider ADP comes in much stronger than expected at +201,000 (market was expecting +140,000) and the highest monthly total since March. Official figures from the US Department of Labor are expected to show a gain of 127,000 jobs for the month when they're released Friday at 1330 BST.

1310 BST: Fire at ECB HQ?

Symbolism aside, I'm hearing credible reports from inside the ECB's offices in Frankfurt that a fire alarm has been activated and the city's fire bridage (Feurwehr Frankfurt am Main) has been despatched as a result. No word yet as to whether this will delay the 1330 press statement - or, indeed, if the alarm is real - but I'll keep you posted.

1245 BST: ECB

No change to lending (0.75 percent) or deposit rates (0.0 percent). Fourty-five minutes to wait.

1235 BST: RBS on the BoE

The Minutes are likely to show unanimous votes. Adam Posen's term on the MPC ended on 31 August, so his departure will mean some dilution of the Committee's dovish bias (though we believe the Committee's policy reaction function will continue to shift more readily in a dovish direction) ... The August Inflation Report showed a sizeable undershoot of the inflation target - prima facie an undershoot of 32bp (1.68% CPI inflation) at the two-year horizon but, in reality, a larger undershoot than this because the projection incorporated market assumptions of lower short-term rates premised on expectations of a Bank Rate cut (which seems unlikely to materialise any time soon).

1200 BST: No change

A terse release from the Bank of England's Monetary Policy Committe: no change to its key lending rate (0.5 percent) and no change to the size of its asset purchase programme (£375bn) and no statement released as a result.

Draghi awaits ...

1140 BST: Unitended consequences

An interesting econoimc paper doing the rounds this morning ahed of the twin central bank decisions from the BoE and ECB. William White, the Canadian economist who's most-widely known for having the earilest "on record" warning of the 2007 credit crisis, cautions that active central bank policy, including ultra-low interest rates and aggressive asset purchases, are harming the global economic recovery.

White aruges that:

"...monetary policy should be tightened, regardless of the current state of the economy, because the near term expected benefits of ultra easy monetary policies are outweighed by the longer term expected costs. Undoubtedly this would be very painful, but (by definition) less painful than the alternative of not doing so.
It is also the case that ultra easy monetary policies can eventually threaten the health of financial institutions and the functioning of financial markets, threaten the "independence" of central banks, and can encourage imprudent behavior on the part of governments. None of these unintended consequences is desirable. Since monetary policy is not "a free lunch", governments must therefore use much more vigorously the policy levers they still control to support strong, sustainable and balanced growth at the global level."

1005 BST: OECD bombshell

The Organisation for Economic Cooperation and Development (OECD) has slashed growth forecasts for the world's largest economies, including Britain, which it now expects to *shrink* by 0.7 percent after previously anticipating a growth rate of 0.5 percent in May.

For the G-7 as a whole, the Paris-based OECD says 2012 growth likely be 1.7 percent. US GDP forecasts were trimmed to 2.3 percent from 2.4 percent.

In Europe, German's growth is expected to slow to 0.8 percent from 1.2 percent: France will barely expand by 0.1 percent this year and Italy's recession will deepen further to -2.4 percent from a prior assessment of -1.7 percent.

"The euro area remains a crucial point, the epicentre of the crisis," said OECD chief economist Pier Carlo Padoan. "It needs to be addressed for its own sake; it needs to be addressed for the stability of the global economy. It is critical that the ECB can go ahead with bond market interventions."

1000 BST: Eurzone GDP revision

Economic growth across the Eurozone was confirmed to have contracted by 0.2 percent from the previous quarter, Eurostat said, but the year-on-year shrinkage was a deeper than expected 0.5 percent. (previous 0.4 percent)

0955 BST: Spanish yields fall

Spain sells €3.5 in bonds maturing in 2014, 2015 and 2016 at lower yields, but with weaker investor demand than in previous sales. The 2-year sale averaged 2.798 percent (€680m) while the 3-year sale averaged 3.676 percent and the 4-year averaged 4.603 percent.

Spain's benchmark 2-year notes continue to outperform, taking the yield below 3 percent for the first time since 10 April, according to Bloomberg data. The "Draghi Effect" has now trimmed 178 basis points from Spain's borrowing cost since its last 3-year auction on 2 August.

0940 BST: Currency gains

The European single currency is sitting at a two-month high of 1.2627 against the US dollar this morning, rising 0.2 percent in a week's-long rally first sparked by Draghi's speech to the Global Investment Conference in London on 26 July.

"In our view, there is a limit to how open-ended the announcement can be, given ongoingissues such as the opposition of the Bundesbank and the fact that Spain has yet to requestaid. Announcing that purchases will be sterilised should help address the Bundesbank'sconcerns about debt monetisation," Barclays' strategist wrote in a research note published today. "Is there room for positive surprises? Yes, but the bar is now higher after press reportssuggesting that debt purchases could be unlimited in size. EUR/USD is likely to see somesupport under our base case as investors respond to the news."

0900 BST: Conditionality

Forgotten in the market's bullish reaction to Draghi's well-leaked "Monetary Outright Transactions" (MOT) programme is the fact that direction intervention can only follow after the recipient nation asks for formal assistance from its Eurozone partners - or, possibly, the International Monetary Fund as well. Spain's cabinet meets on Friday and may swiftly agree to the oversight. But will Italy?

It's worth also remembering that there are several potholes (and apt analogy when talking about MOTs) on this path to bond yield sanity: The German Constitutional Court's decision on 12 September as to whether or not Germany can legally participate n the region's permanent bailout fund and a general election in the Netherlands on the very same day.

0835 BST: Swedish rate cut

Sweden's central bank, the Riksbank, has lowered its key lending rate, known as the repo rate, by 25 basis points to 1.25 percent. Markets had priced-in, thanks largely to Riksbank's direction, a 30 percent chance of a rate cut throughout most of the summer. However, Monday's manufacturing data release - which showed a plunge in new orders that shrank the sector by the fastest pace since 2009 - may have changed assumptions for the key rate's direction throughout the rest of the year.

The Swedish crown sank to a seven-week low of 8.5520 against the Euro following the decision.

0820 BST: Quick bond check

Fixed income markets are trading predictably in advance of the ECB statement at 1330 BST: German 10-year bund yields have backed-up 6 basis points to 1.47 percent while 2-year yields for Italy and Spain - where investors anticipate the bulk of the ECB's firepower will be focused - continue to fall, trading at 2.65 percent and 3.15 percent respectively.

0805 BST: Stocks on the move

Early indications are bullish as the Europe-wide FTSE Eurofirst 300 rising 0.2 percent to 1,080.86. Strong gains, as well, for markets in Spain (IBEX +0.7 percent), Italy (FTSE MIB +0.7 percent) and Germany (DAX +0.5 percent). Britain's FTSE 100 is 0.3 percent to the good in the early minutes of trading.

0750 BST: Good Morning!

We get a double-dose of central bank statements today with both the Bank of England and the European Central Bank set to wade deeper into their respective markets as the broader macro economy slows and investor confidence wanes.

While BoE Governor Mervyn King is not expected to lower his key lending rate from the current 0.5 percent, there is a sizeable minority of observers who predict he may increase the scope of his Monetary Policy Committee's asset purchase programme by £25bn to £400bn. We'll get the full announcement at noon BST.

ECB President Mario Draghi's press statement at 1330 BST, however, is the key for investors around the world today as they await fuller details of his plan to support bond yields around the Eurozone with what some are reporting will be an "unlimited" bond buying programme. Any backtracking from the stated commitment to preserve the single currency and cap spiralling yields within troubled EU partners Italy and Spain will be met with a severe market reaction.

In anticipation of the ECB plan, markets appear to have a defensive tone this morning as the broadest measure of Asian shares, the MSCI Asia Pacific Index, slips 1.2 percent to 115.79. European markets are called to open stronger by the financial bookmakers led by a 15 point rise by the FTSE 100. The European single currency is around 0.1 percent higher at 1.2620 against the US dollar and German bund futures are trading around 12 ticks lower at 141.28.