Yesterday, Eurostat published the Consumer Price Index (CPI) for June, which rose 0.3% year-on-year. This is a rebound in inflation in the region from the 0.1% rate recorded in May. The figures were in line with analysts’ expectations. However, even with the effect of the German VAT cut, European inflation should become negative again in July.
Yesterday, it was confirmed the historical collapse of Spanish GDP: it declined 5.2% until March due to Covid-19, its biggest quarterly fall recorded in the historical series. With a contraction of the activivity in the second quarter greater than that in the first taken for granted, Spain is facing a recession. In this context, the Bank of Spain argues that the only way to bring the country’s accounts back under control after the pandemic will be the combination of fiscal adjustment and structural reforms.
Elisa Aracil via The Conversation | The International Monetary Fund estimates that Latin America will experience an economic contraction this year equivalent to what happened after the crash of ’29. Specifically, a devastating 5.2% drop in GDP is expected in 2020, compared to an expected growth of 1.8 % in the pre-COVID-19 forecasts.
BofA Global Research | We stay overweight France, Spain and Italy, as they should benefit from a continued rebound in PMIs. We raise the UK to marketweight after the recent undershoot. We remain marketweight Germany, as it discounts much good news. We are underweight Switzerland, as it tends to underperform when improving growth momentum lifts bond yields.
Ranko Berich (Monex Europe) | “After months of the greenback rallying on bad news as investors sought safe havens, it seems like the uniquely bad domestic COVID-19 situation has finally caught up with the US dollar. It is the end of the quarter, but today’s price action nonetheless has a feel of the dollar’s chickens coming home to roost.
Colonial has limited the impact of the coronavirus crisis to 2% of the total rent it charges for its office buildings. Depending on how the situation evolves, this percentage could rise to a maximum of 6% for the year as a whole, according to chairman Juan José Brugera. This rate is equivalent to about 21 million euros, in virtue of the 352 million euros in rental income recorded in 2019.
Tristan de Bourbon (London) | “The United Kingdom joined the European project because the elite wanted to return to a much more open economy, to liberalise the British economy. They also discovered the United States would never treat the United Kingdom as an equal and would remain protectionist,” explains David Edgerton, Professor of History at King’s College London and author of the recent book The Rise and Fall of The British Nation, where he analyses the ideology behind the government’s action.
Bankinter | Spain recorded almost 6,000 flights in a week in which operations resumed, up 66.6% compared to the previous week (3,523 landings and takeoffs). Air traffic has shot up in destinations like Palma with a 177.6% rise, while others like Madrid have seen an increase of 32% in operations.
Chris Iggo (AXA Investment Managers) | The second quarter was disastrous for society and the global economy. The danger on both fronts is passing only slowly. Yet the quarter was great for markets. Barely any asset class delivered a negative return. Trillions of dollars of money was created and central bank balance sheets boomed. It has been a lesson in not underestimating the power of policy. Cheap valuations and rocket-fuel policy drove risk assets. The starting point for Q3 is not quite the same. Where fundamentals go is much more important now.
In the US, although the figures are deteriorating in just 16 of 50 states, the problem lies in the fact that this group is made up of some of the most relevant from an economic perspective: California, Texas and Florida. But while the proximity of Independence Day celebrations is perceived as a potential risk for an explosion of new infections, the reality is that fine tuning measures are being advocated and large-scale closures will be avoided at all costs in the US and elsewhere in the world.