ECB damp squib: Upside trigger has been robbed, says Udayan

So much build-up about yesterday and it turned out to be a damn squib, says CNBC-TV18's Udayan Mukherjee. And that was always the fear going into the euro event.

Mukherjee says both the Fed and ECB have not given the market what they wanted, at least in the near term and that calls for disappointment. European markets sold off yesterday and the euro did as well.

German officials have also warned the ECB against large-scale bond buying in recent days and Draghi conceded that the German Bundesbank and chief Jens Weidmann had their "reservations" about the bond-buying program.

We are not staring at a massive sell-off this morning because may be the market had at the back of its mind the possibility of this disappointment. So reactions are measured and that might well be the reaction in our market as well. But a potential upside trigger from the liquidity front has been robbed for this market because of the events and how they turned out despite some expectations.

But this is classic Mario Draghi, because he has done this in the past; over promised and under delivered. What locus stand does he have telling the market that nobody should short the euro. That’s not an ECB chairman’s call at all. It is like the RBI in its monetary policy telling people you should not go long or short on the rupee-dollar. This is just not his place to say all these things. So bombastic words, no action at all.

But what was significant yesterday was that he said that everything that he could do and he wanted to do needs political sanction. So Mario Draghi says ‘I will do what it takes,’ but it will require political sanction, which means governments will either have to fall in line with austerity plan or give him the political sanction. This basically means the German authorities will have to give him the political sanction to go ahead and buy bonds.

So these are now becoming conditional statements which mean that the basic necessary condition for this kind of action becomes either a market meltdown or huge worsening of economic data which comes over the next few weeks. In the European case it will require the Spanish bond yields to go back to huge exorbitant levels once again. So combination of factors which are bad for the market per se will need to happen before the market gets what it wants, which is not a great sign at all, which is why most markets are correcting.

Now the big question is whether markets will remain in hope from here that something will happen eventually. Liquidity is anyway quite benign in the market, and after a small knock that we saw yesterday and may be even today, we will have to see whether the market will move on or if this is the end of the risk on phase.

But if there is a further meltdown or if there is a major economic breakdown in terms of data, then even the people who are opposing it today will come around to saying yes, and that is what Mario Draghi is betting on. What if Spanish yields go to 9%. What if the euro breaks down, what if Spain completely collapses? It is not in Germany’s interest to stand on the sidelines and watch the fun, so it will push only till a point. But when the breakdown happens, Germany will have no option but to play ball because it doesn’t help its case if the euro comes apart.

So they will all not take any kind of preemptive steps and that is the problem the market has with the euro region. It does not work in a preemptive fashion, it waits to see how things will evolve and then it will come and put the band-aid.

Draghi has put his hand up and said it is not his call.  It is now up to the governments to decide. So no matter what he says periodically, about not shorting the euro or he will do “whatever it takes”, I think it is clear that his hands are quite tied. Like Mohamed-El-Erian said we are headed for a synchronized global meltdown.

Also read: Will Nifty hold 5200 on ECB disappointment?