Rubén Segura-Cayuela (BoAML) | We still expect a top-up of the Pandemic Emergency Purchase Programme (PEPP) by another EUR500bn to stretch until end-2021- probably announced in December. That will be necessary to accommodate the economy. But it will not suffice to tackle long-term inflation dynamics and faltering expectations. More and longer policy support is needed, urgently.
Philippe Waechter (Natixis IM) | Germany and France account for 23-24% of the deterioration in GDP in the euro area, while Italy and Spain are each responsible for around 15%. The remainder of the euro area accounts for 21%. We note that the weighting of Germany’s contribution is lower than the weighting of its contribution to GDP for the euro area. The opposite is true for France and Spain, and this shows the extent of the turmoil in these two countries, particularly Spain.
Scope Ratings | The EU’s forceful crisis-response will increase supply of highly rated euro-denominated government and supranational bonds, which could weaken the sovereign-banking nexus and bolster the euro’s international role.
Tiffany Wilding and Nicola Mai (PIMCO) | European measures applied to mitigate the effects of the pandemic have contained the unemployment rate in Europe more than in the U.S. While recognizing economic risks from the rising number of COVID-19 cases in the U.S., our forecast sees this success ratio reversing before the end of the year.
David Page, Head of Macro Research at AXA Investment Managers | The BoE left policy unchanged with Bank Rate at 0.1% and Asset Purchase Target at £745bn by unanimous vote. The Monetary Policy Report included projections for GDP to fall by 9.5% in 2020 and rebound by 9% in 2021. CPI was forecast to fall to 0.25% by end-2020, but to recover to 2% by end-2022. The MPC noted considerable uncertainty, but with risks skewed to the downside. The Report presented some discussion around the outlook for negative interest rates, which it confirmed it was “currently considering”.
Caixabank Research |Monetary policy has reacted quickly and decisively to the COVID-19 pandemic. However, having successfully played the role of “fire-fighter”, the ECB will have to remain highly active to support the revival of the economy. In just four months the ECB has increased the size of its balance sheet by more than 1.6 trillion euros (+35%), as much as it did in the entire four years of the global financial crisis and the euro area’s double recession of 2008-2012. It took four years (2008-2012) to do so then.
Morgan Stanley | The European Recovery Fund will not only benefit peripheral countries but also sustainable activities. In the end, this package will have an even greater green bias than initially expected: 30% of the funds will go towards climate investment compared to 25% in the initial proposal.
The ECB has finally decided to extend from 1 October this year until 1 January 2021 the recommendation to banks to not pay dividends to their shareholders. Nicolas Hardy, Analyst of Financial Institutions at Scope, thinks this measure is positive in the short term, but could be questioned in the long term as EU banks are facing different operating conditions in the wake of the pandemic.
The European Commission has signed a 63 million euro contract with US pharmaceutical Gilead to ensure the supply of the drug ‘Veklury,’ its trade name for Remdesivir, to some 30,000 patients with severe symptoms of Covid-19 during the summer months.Late last month, the US Department of Health and Human Services struck a deal to buy nearly all of Gilead’s projected production until the end of September.
Santander Corporate & Investment | The ECB published on Tuesday the aggregate results of its vulnerability analysis of the 86 banks directly supervised under the Single Supervisory Mechanism. This shows that “the euro area banking sector can withstand the stress induced by the pandemic but, if the situation worsens, the decline in bank capital would be significant. Furthermore, the ECB has extended its recommendation that banks should not distribute dividends until 2021.