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European economy 7th May 2020

BoE Chooses To Wait In Face Of Uncertainty

David Page (Head of Macro Research at AXA Investment Managers) | The Bank of England (BoE) today announced its monetary policy decision for May. It left the Bank Rate unchanged at 0.10% as widely expected, by unanimous vote. It also left QE unchanged, leaving the Asset Purchase Facility target unchanged at £645bn. This was in line with the median consensus forecast, but we had expected a £100bn increase in QE today as the current programme is set to expire in early July. This was by split decision, with two members voting for an immediate £100bn increase. The majority of the Committee decided to wait for “more information… that was likely to become available over the coming weeks”, but these members “all” acknowledged prospective weakness in the economy and downside risks to the medium term outlook “might necessitate further monetary policy action to support the economy in the future”. We fully expect the MPC to increase QE, probably by £100bn at its next meeting on 18 June.

Karlsruhe Court

European economy 6th May 2020

Why Is The German Constitutional Court Now Challenging The ECB’s Purchase Programme And European Justice?

The German Constitutional Court surprised everyone yesterday with a ruling that some of the European Central Bank (ECB)’s actions, carried out as part of its 2015 bond purchase programme (PSPP), are unconstitutional. This decision clashes directly with the judgement of the European Court of Justice (ECJ). The decision does not call into question the entire debt purchase programme, but rather the part relating to the Bundesbank’s intervention.

ECB both christines

European economy 6th May 2020

The ECB Buys £26.75 Bn Of Bonds In April: 41% Italian, 31% French, 16% Spanish, And Just 2.3% German (Under Its Usual Purchase Programm)

Banca March | The European Central Bank expects an economic contraction of 5.5% in 2020 and a recovery in 2021 to growth of 4.3%. In this context of deteriorating growth forecasts, the ECB continues to increase its asset purchases to support the region’s economy. Even though, it does not reveal the composition of the purchases within this specific programme of support for European economies hit by COVID-19, we can take a look at its usual programme of sovereign debt purchases (known as the PSPP).

Spanish España.

European economy 1st May 2020

Spain, Among The Countries That Are Far From Having Mobilized Sufficient Fiscal Resources

Yves Bonzon (Julius Baer) | On the fiscal side all countries might provide support measures that are quantitatively and qualitatively strong enough to ensure recovery when the containment ends. The way the required transfers from governments to their private sectors are financed, in essence the chosen mix of tax increases, borrowing from private savings and monetisation, will play a determining role on the recovery capacity of different countries and regions.

european banks2

European economy 30th April 2020

Financial Sector Shields Itself From Coronavirus Shock; Brussels Helps With Regulatory Loosening

In the midst of the Q1 2020 earnings season, the financial sector is beginning to protect itself from the more than likely economic shock of the coronavirus. Meanwhile, The European Comisssion offered European banks temporary relief from capital regulations that could boost credit by up to €450 Bn this year. Brussels argued that the economic damage caused by the coronavirus crisis would justify a “selective” relaxation of the regulations introduced in the wake of the 2008 financial collapse.

Sanchez Conte

European economy 28th April 2020

The Opposition For Eurobond Remains Strong

Lidia Treiber (Wisdom Tree) | As the impact of Covid-19 lockdowns begin to more deeply unveil the economic impact that these severe measures have had on different European countries, the cost of funding has started to rise sharply for hard hit countries such as Italy and Spain. The spread of peripheral sovereign bonds over German sovereign bonds has begun to widen as investors become concerned about the rising debt to gross domestic product (GDP) levels for countries with already weaker fundamentals.

ECB stimulus package

European economy 25th April 2020

ECB Takes The Highway To High Yields

Bank of America Global Research | On 22 April 2020, the ECB announced temporary measures to mitigate the impact of possible rating downgrades on collateral availability. This includes the acceptance of certain non-investment grade rated assets as collateral for its credit operations. In the collateral easing measures announced on 7 April, the central bank announced plans to temporarily mitigate effects from rating downgrades.

cash clunkers

European economy 24th April 2020

Germany Could Propose Another “Cash For Clunkers” Programme To Alleviate The Damage To The Auto Sector

Santander Credit Research | The scrapping programme to remove older vehicles and replace them with new ones helped Germany’s economy to emerge quickly from the consequences of the financial crisis a decade ago. Senior managers in the automotive industry, as well as trade unions, are due to meet with the German chancellery in Berlin on May 5 to discuss ways of overcoming the economic crisis. And this programme may be on the table. 

Nadia Lagarde

European economy 22nd April 2020

Spain Proposes A Fund Linked To The European Budget As An Alternative To Coronabonds

The European Council will discuss the European Recovery Fund at its meeting on Thursday 23 April. If last week France was talking about a fund of 500 billion euros, while Italy continues to insist on coronabonds, now Spain is proposing an up to 1.5 trillion euros fund, financed by perpetual debt issued by the EU. The intention is for this funding to be available on 1 January 2021.