UK’s equity market has trailed Europe’s considerably this year. The UK’s FTSE 100 Index is down over 20% while Euro Stoxx 600 Index is down just over 11% year-to-date in sterling and euros respectively. If we compare the two in Euros, the UK fares even worse on account of Sterling’s weakness relative to the Euro – another sign of the UK being hurt more by the risk of Brexit disruption and uncertainty.
The European banking landscape does not look much worse six months into the pandemic-triggered economic crisis than before Covid-19 struck. Loan-loss provisions are higher, there is negative pressure on top-line revenues and gloomy market predictions linger. But the prospect of a new banking crisis is remote. The principal merit goes to the regulatory architecture set up in Europe after the Great Financial Crisis.
The European Central Bank has decided to allow the lenders it directly supervises in the region, on a temporary basis until June 27, 2021, to exclude certain exposures to the central bank from their leverage ratio. In this way, the institutions will have more room to incur debt since the ECB will not require more capital for it. In fact the ECB will not take into account the liquidity (cash and deposits) banks hold at the central bank when calculating the leverage ratio (Capital/Assets).
Santander Corporate & Investment | New car registrations in Europe (EU+UK+ European Free Trade Association) plummeted 17.6% annually in August to 884,394 vehicles. Thus it broke the three-month period of smooth declines, including a 3.7% drop in July. In total, 7.267,621 new cars were registered in the European Union between January and August, almost 3.6 million less than in the same period last year. The outlook for the sector for the rest of the year is not encouraging.
European Views | Across Europe, real estate markets which were already daunting for lower-income buyers – like Germany or Portugal – are set to become even more gruelling because of new economic stresses caused by the pandemic. 40% of young people in Europe who are at risk of poverty consider prohibitive housing costs, one of the chief contributors to their plight, while a similar percentage of low-income earners already struggle with overcrowded living situations.
Peter Isackson | The Guardian offered its readers what is certainly the most comic and hyperreal sentence of the week when it reported that “Boris Johnson accused the EU of preparing to go to ‘extreme and unreasonable lengths’ in Brexit talks as he defended breaching international law amid a mounting rebellion from Tory backbenchers.”
Poland ́s economic contraction due to the coronavirus pandemic is expected to be 3.5%, much lower than the Eurozone recession of 8%. The economic performance is less dependent on exports compared to Poland ́s Central European peers like the Czech Republic, Hungary or Slovakia. At the same time private consumption accounts for 58% of GDP, reducing the vulnerability to external shocks (as evidenced by avoiding a recession in the 2009 credit crisis). In 2021 the economy is forecast to rebound by 5.6%.
The Bank of England (BoE) left policy on hold at its latest meeting. Bank Rate remained at 0.1% and the Asset Purchase Facility (APF) was left at £745bn. Both decisions were made unanimously. The BoE explained that the APF had risen to £684bn to date, buoyed by £230bn in gilt purchases and £9.3bn (of £10bn) corporate debt purchases. The current QE programme is expected to expire around the turn of the year and purchases have been lower than in Q2 given the improvement in liquidity conditions.
This morning (Wednesday 16 September), the President of the European Commission, Ursula von der Leyen, delivered her ‘State of the Union’ address before the European Parliament in Brussels.
The presidents of UBS Group and Credit Suisse Group would be exploring a potential merger to create one of Europe’s largest banks. Both banks are undergoing changes at the top management level and are under pressure to reduce costs. Meanwhile, the coronavirus pandemic is sparking renewed interest in consolidation in Europe. The news comes in the wake of just over a week of the announcement about the potential consolidation of two Spanish entities operating in the same market – CaixaBank and Bankia.