Bruno Cavalier (Oddo BHF) | There are two types of central banks in the world. On the one hand, those who believe that the recent rate hike is widely justified. This is the case for the Fed, at least so far. On the other hand, those who think the opposite. This is the case of the ECB, which is exasperated to see European rates rising, not as a sign of a solid recovery, but because of the contagion of the US bond correction.
European Views | A growing number of EU countries are voicing their concerns over Beijing’s increasing leverage as Chinese companies gain footholds in a number of essential European sectors. The Finnish intelligence community recently raised particular concerns about Huawei’s involvement in 5G networks and claimed that China & Russia are “trying to get hold of Finland’s critical infrastructure”. Dutch intelligence services, meanwhile, released a report last week arguing that Chinese cyber-espionage might pose an “imminent threat” to Dutch national security interests, particularly in key sectors including banking, energy and infrastructure.
The Bundesbank, Germany’s central bank, will not distribute any profit to the Federal Government for the first time since 1979, following the noticeable impact that the emergency monetary policy measures implemented in response to the pandemic had on the bank’s balance sheet, which substantially strengthened its risk provisions. The German central bank’s net interest income in 2020 fell by 38.2% to €2.87 Bn, while it posted losses of €1.557 Bn for financial operations and risk write-downs against the profits of €2.281 Bn in 2019.
Steve Schifferes via The Conversation | What a difference a year makes. In March 2020, the chancellor of the exchequer, Rishi Sunak, announced an emergency budget pledging £12 billion to tackle coronavirus. One year later, the government has already spent £280 billion, and spending by spring 2022 will exceed £400 billion. The 2021 budget – perhaps the most widely leaked in history – contains a cornucopia of short-term measures, such as the extensions to the furlough scheme and to the VAT cuts for hospitality.
News about vaccines against coronavirus and the progress of vaccination campaigns globally are coming thick and fast. The production of vaccines is rising significantly as companies are working in shifts of 24 hours a day, seven days a week, said the pharmaceutical industry association Ifpma. On the other hand, the EU leaders have passed the creation of a digital vaccination certificate in order to exempt travelers from restrictions such as quarantines or PCR tests, an essential aspect in order to boost tourism.
Morgan Stanley | The size of the Recovery Fund is very relevant, equivalent to 5% of the European Union’s GDP (10-15% in Greece, Spain and Italy). In contrast to the US, where the fiscal stimulus has been earmarked for more immediate/current spending, in Europe most of it is devoted to future investment with a long-lasting effect over the next 3-5 years. This long term duration is the key concept and the fundamental reason for our preference.
Paul Griffin (Schroders) | Late last year, the EU agreed a €1.8 Tr stimulus package to help Europe’s economies recover from Covid-19. The funding comes from the long-term budget and the Next Generation EU initiative, whose aim is to create a greener, more digital and more resilient Europe. These goals will not be achieved without innovation. Contrary to what some investors believe, Europe is home to plenty of pioneering companies whose science and engineering capabilities can help address the many challenges facing the world today.
Banca March | Total’s CEO, Patrick Pouyanné, has given an interview to the Financial Times in which he warns of the danger of a possible “bubble” in the renewable energy sector. According to Pouyanné, and without mentioning specific examples, the scarcity of important assets in this type of energy has led to a number of acquisitions with “crazy” valuations, in some cases reaching multiples of up to 25 times profits.
Bruno Cavalier (Oddo-Bh) | In January, inflation in the Eurozone jumped by 1.2 points to 0.9% yoy, largely due to the increase in VAT rates in Germany. Later this year, the ECB’s target inflation rate of 2% is likely to be exceeded. After the compression of some prices in 2020, the base effects are expected to be very strong. The ECB has no reason to react to a bump in inflation, but since Christine Lagarde has accustomed us to a convoluted message to please the “hawks”, we cannot exclude the possibility of the ECB getting muddled up in its communication.
European Views | Amsterdam took over London as Europe’s largest financial trading hub following post-Brexit changes to finance rules. According to a report by BBC, value turnover on Amsterdam exchanges now stands at 9.2 billion euros or higher by 7 percent than London’s 8.6-billion-euro daily turnover. Following new Brexit rules, European Union (EU)-based banks switched to buying European shares currently not traded on the London stock exchange, resulting in loss of fees for city firms.