rss

European bonds responding favourably to Germany, France recovery fund proposal

Well, for now at least

Italy 10-year yields

And this will also help to add a tailwind for equities/risk in the near-term as bond investors add to the optimism. The yields spread between 10-year Italian and German bonds has now narrowed to its tightest levels in five weeks to 206 bps.
This comes amid a continued fall in Italian bond yields, with 10-year yields now at 1.62%.
The hope with the recovery fund proposal by Germany and France is that it is something that is put together because it has enough support to get through. But I’m not too sure if that will necessarily be the case as Italy and Spain may need more convincing.
That said, a key change under this latest proposal is that the funds will be given as grants (instead of loans), something which Italy and Spain has been fighting for.

Here is what’s ahead for the proposed €500bn Recovery Fund (a rocky road)

Germany and France have put their hands up in agreement to the support the €500bn Recovery Fund

The path ahead for getting approval is a rocky one though:
  • will require unanimous support of the rest of the 27 EU members
If it gets that far:
  • funds would be raised by the European Commission
  • they’d borrow on capital markets
  • then disburse the funds to nations as needed (provided as grants, not loans)
Giving the cash away, net lending it, is a sticking point, so far, for Austria, the Netherlands, Denmark, Sweden (and perhaps others).
Nevertheless, the support from the big two was enough to help risk along on Monday:

Coronavirus ICYMI: 108 million people in Jilin province, China, back in lockdown

China’s northeast region province of Jilin is back under lockdown conditions due to a fresh outbreak of a COVID-19 cluster

Jilin province cities
  • trains and buses cut
  • schools shut
  • quarantine restrictions again on people in certain districts
The cluster numbers 34 infections so far (that is a dated number).
Expect this sort of news to continue as ‘second wave’ infections take hold around the globe.

China's northeast region province of Jilin is back under lockdown conditions due to a fresh outbreak of a COVID-19 cluster

China confirms 80% tariff on Australian barley

The news that China was to impose an import tariff on Australian barley broke back on May 10

The tariff imposition has been announced in a statement from China’s Ministry of Commerce
  • anti-dumping tariff would be 73.6 per cent
  • while the anti-subsidy tariff would be 6.9 per cent
  • will remain in place for five years
This from China is in retaliation for Australia leading calls for an investigation into the origin and spread of COVID-19. China also halted imports of Australian beef last week as part of their response.
 The news that China was to impose an import tariff on Australian barley broke back on May 10 

Fed’s Powell says will keep interest rates low until economy on track to hit goals

Chair of the Federal Reserve Powell comments from text prepared for his hearing before the Senate Banking Committee.

Nothing new from Powell in these remarks.

  • “We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response”
  • “We expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.”

Powell is scheduled to appear in the virtual hearing at 10 am Tuesday in Washington

  • US Treasury Secretary Steven Mnuchin will also appear

Chair of the Federal Reserve Powell comments from text prepared for his hearing beforethe Senate Banking Committee.