■ Equity markets surge and EUR weakens as ECB purchase program unfolds

■ EUR/USD lowest in 11 years at 1.1204

■ DAX Index rises 4.7% during week, concluding 12.4% rally since Jan 6th

■ S&P500 (SPY) gains 1.6% on four-day session

■ Canada, Turkey and Pakistan central banks also adopt dovish measures

Markets experienced an overall positive session last week amid rising anticipation for the ECB to announce an asset purchase program, on Thursday. It ended "well", at least equity market wise, with very impressive gains in Europe. These included the German DAX Index, which added 4.7% during the week, to a level of 10,649.58.  The Spanish IBEX35 saw even larger gains, adding 5.4% during the week. Positive figures, albeit generally smaller, were also seen at U.S. stocks with the S&P500 (SPY) adding 1.6% on a four-day session. The technology intensive Nasdaq (QQQ) outperformed the S&P with a 2.7% weekly addition.

Orchestrating the move was European Central Bank President Mario Draghi committing to purchase EUR 60 bln per month, on Thursday's press conference following the ECB's rate announcement. The ECB's planned program was said to span between the coming March and at least until September 2016. Draghi further added that the program "will in any case be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term."

The Euro itself also presented a very significant reaction to the news, losing some 2.1% on Thursday vs. the USD. In total the currency pair decreased by 3.1%, during the week, concluding it at 1.1204. This is the weakest point for the Euro vs. the U.S. Dollar since September 2003. The dovish sentiment on the old continent was also significant at GBP/USD, seeing a 1.1% weakening of the Sterling.

Buildup is a virtue

As for the magnitude of the effect that the ECB's announcement had on markets, it seems to be somewhat larger than what you might expect given the purchase program was generally recognized as priced-in for quite some time (see, for example, last week's "Economic Events of the Coming Weeks"). Reviewing the couple of days preceding Draghi's announcement, we recognize that the ECB benefitted from quite a build up to the event.

Some central banks, it seems, preferred not to hold on for the announcement itself, but rather adapt their policy in advance. Notable among these was the Central Bank of Turkey, which announced, on Tuesday, a somewhat unexpected 0.5% cut in its rate, from 8.25% to 7.75%. The Bank of Canada followed, making a surprise cut, bringing its base rate from 1% to 0.75%.

Markets increasingly priced in the ECB purchase on Wednesday, as global media reported details of the upcoming program, according to “people familiar with the matter”. The Wall St’ Journal Reported that the European Central Bank’s board proposed purchasing approx. EUR 50 bln, per month, for a duration of at least a year. One caveat was provided when the WSJ stated that "the final number and details of the program could change after the full board has its say".

The EUR strengthened prior to the news, seeing EUR/USD rise from around 1.1550 to hover nearly a figure higher at 1.1640. Said reports, however, seem to have been difficult to digest by the markets – What was the ECB trying to imply with this "leak"? And perhaps more importantly, what weremarkets expecting? Reaction to the news initially consisted of a sell-off at the EUR, leading EUR/USD approx. 70 pips lower, to just 1.1560. The trend reversed soon after, however, rising as high as 1.1680, only to conclude the day at 1.1610 – Evidently, a lot of traders grew interest at the ECB's move, as info oozed in.

Looking ahead, Evidence that the ECB's move was not the last dovish act worldwide was also provided last week. Following the introduction of the ECB's program, On Saturday, the State Bank of Pakistan announced a cut of its discount rate from 9.5% to 8.5%. "A sustained adjustment in the path of inflation", as Draghi deemed necessary to end the ECB purchase program, is difficult to put your figure on. One "which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term" is even more so. If there's one thing QE3 taught us, it's that asset purchase programs are easier to start than finish…