The ECB has left its policy stance unchanged after today’s GC meeting. The tone of the press conference was a touch less dovish than expected and President Lagarde has not signaled any large swing in policy in the near term. The overall message was clear: the ECB is monitoring current developments (including the EUR) and assessing the efficiency of the current policy measures before acting with more accommodation
European Views | Protests against pandemic lockdown measures have been gaining momentum across the world, but it’s events in Germany that have caught international attention. The latest demonstration in Berlin at the end of August drew some 30,000 people out of their homes – and the sheer range of ideologies on display from anti-vaxxers to ecologist to the far right, has re-opened a debate in the country about what it means to participate in the modern-day political process.
We do not expect ECB policy action this week, but guidance is that the ECB has its finger on the trigger for more PEPP (Pandemic Emergency Purchase Programme). Communication will not be easy, but EUR appreciation, record low core inflation and Fed policy should make for very dovish tones. We expect €500bn more PEPP in December, but inflation expectations urgently need attention too. Front-end rates will likely be supported by FX concerns, but credit risks are increasingly underpriced in by the market. Beyond verbal intervention, we think the ECB has limited options to weaken EUR for now.
Santander Corporate & Investment | Global sales of electric cars and plug-in hybrid electric vehicles increased 72% annually and 5% monthly to 253,000 units in July (the 4th best monthly figure in history). Europe recorded remarkable growth (199% in yearly terms and 22% monthly), due to incentives and requirements to cut average emissions in the EU. Meanwhile there was a slight recovery in China (+44% on a yoy basis, but -5% monthly). Germany, France and the UK made the largest contributions to sales growth.
London-listed stocks rallied yesterday as the pound sank, after Prime Minister Boris Johnson said that the UK will walk away from Brexit negotiations if a deal is not reached by mid-October.
Last week in financial markets saw the euro rise above the $1.20 threshold. ECB chief economist Philip Lane intervened recalling market participants that the exchange rate “mattered”. The single currency traded down to $1.18 shortly after the comments. Currency appreciation amid near-zero inflation in the euro area is unwelcome for future price developments. Christine Lagarde’s message next Thursday after the governing council will likely echo Lane’s comments.
On Thursday September 10, the ECB will meet and present its updated macroeconomic table, which will give us a better idea of its expectations regarding the pace of economic recovery (the August PMIs showed signs of weakness after the strong rebound from the April lows). The central bank will also update its view on current and future inflation levels with data once again showing very contained prices and in a context where the Fed is willing to tolerate inflation above 2% to obtain this figure as an average.
Veolia’s proposal for a timely and transformative combination with Suez could lay the foundation for accelerated growth. Analysts at BoA Global Research think stakeholder interests are aligned and that a mutually attractive deal scenario is now more likely than not. A growing ESG thematic tailwind adds to the appeal and we upgrade Veolia to Buy.
The European banking sector continues to lose importance as reflected by the fact that both Societe Generale and BBVA will no longer form part of the Euro Stoxx50. Whatsmore, the ECB’s vice-president, Luis de Guindos, has warned of the need for the sector to continue with the merger process. According to de Guindos, this crisis has aggravated problems that already existed before Covid-19. These include high structural costs (commercial networks and staff), high leverage and low profitability.
John Bruton | It is increasingly likely that, unless things change, on January 1, 2021, we will have a no-deal Brexit. That would mean the only deal between the European Union and the United Kingdom would be the already ratified EU withdrawal agreement of 2019. Both Ireland and the European Union need their best team on the pitch as Brexit approaches the endgame.