EU, UK likely to miss mid-November deadline to finalise Brexit deal – report

Reuters reports, citing sources familiar with the matter

The report says that ongoing negotiations in London are expected to last until the end of the week but EU envoys do not expect updates this week with Brexit tentatively being on the agenda for the 18 November meeting between EU ambassadors.

Adding that they now expect negotiators to present some semblance of a deal some time next week, unless talks yield a breakthrough or collapse before that happens.

The source adds that the real deadline is late next week. In other words, they are going to miss the soft deadline at the end of this week and push it to next week instead – where we are likely to experience the same kind of episode as per Brexit tradition.

European shares and the day with solid gains

German Dax up 1.9%. UK FTSE 100 up 2.3%

The major European indices are ending the day with solid gains led by the UK’s FTSE 100.
The provisional closes are showing:
  • German DAX, +1.9%
  • France’s CAC, +1.7%
  • UK’s FTSE 100, +2.3%
  • Spain’s Ibex, +1.5%
  • Italy’s FTSE MIB, +1.8%

In the European debt market, the benchmark 10 year yields are ending the day mixed results. The UK and Spain yields are down marginally while Germany, France, Italy are marginally higher.

Brexit talks look set to hit another roadblock, this time over truck access to the EU

The Financial Times report that Brexit trade talks set to stall again over British truckers’ EU access

  • Brussels warns that UK demands on haulage are too close to single-market rights

Brussels has rejected the UK’s opening demands for continued wide-ranging access to the EU for British truckers
This is just one of the points upon which negotiations will stall. Fishing rights, state subsidies are others. Talks are this week between the two sides.
The Financial Times report that Brexit trade talks set to stall again over British truckers' EU accessBrussels warns that UK demands on haulage are too close to single-market rights

EU proposes €750 billion pandemic stimulus fund

Including €390 billion in grants

the EU is proposing a €750 billion stimulus fund. The grants within that fund are proposed at €390 billion. This is lower than the €500 billion that Germany and France propose, but is higher than the €350 billion billion counterproposal from the so-called frugal countries.

  • You proposes €1.074 trillion for blocks 2021 – 2027 budget

Big Week Ahead

Two G7 central banks meet and at least half a dozen emerging market central banks. There is a European Summit and perhaps a political effort to reinvigorate the UK-EU trade talks, which seem to be crashing on the shoals of stubbornness. The ECB offers its most generous long-term targeted loan that is bound to see earlier loans rolled into this new one. Further evidence that the world’s largest economy has taken a baby step toward recovery.
Let’s unpack next week’s events. But first, note that the events will take place as the recovery in risk assets appears to have come to an end with a flourish last week.  That correction, which seemed overdue, appears to have more room to run. Also, the Covid virus continues to spread globally, and businesses, investors, and policymakers are sensitive to the so-called second-wave as countries and states re-open. Below are thumbnail sketches of the events and data that shape the macro picture.
  • EU Summit: The European Council (heads of state) hold a virtual meeting on June 18 to ostensibly discuss the EU’s  May 27 Recovery Fund proposal.   Some have heralded the proposal as a key turning point in the evolution of Europe, and the possibility of a so-called Hamiltonian moment, a major set toward fiscal union, has been suggested.  We have been less sanguine; recognizing the potential scaffolding for a greater union, but also that projecting emergency actions into the future is fraught with danger.  Austria and Denmark, which have pushed back against grants instead of loans, could be won over by assurances that their rebates will remain intact.  Others, including Eastern and Central European members, may be more difficult to persuade. Although expectations are running high, we suspect an agreement will remain elusive, in which case another try will be at the July summit, which, with a little luck, could be in person.  Disappointment could weigh on the euro.


ECB has given the middle finger to the German constitutional court

You’ll recall from earlier this week that the court ruled the European Central Bank must ensure its QE bond-buying program is proportionate or else Germany’s Bundesbank central bank may no longer participate.

  • And if its not the Germany Bundesbank central bank may no longer participate
The Governing Council of the ECB responded with a “Yeah, right …”:
said it “takes note” of the judgement
  • “The Governing Council remains fully committed to doing everything necessary within its mandate”
One member (at least) said the ECB will not respond directly to the court
  • court’s arguments are ridiculous
  • we could easily answer them
  • we should not do so as this is a risk to central bank independence
So, its an ‘as you were’ for the ECB QE program.
You'll recall from earlier this week that the court ruled the European Central Bank must ensure its QE bond-buying program is proportionate or else Germany's Bundesbank central bank may no longer participate.

ECB: Euro area GDP could shrink by 5% to 12% this year

ECB notes in a pre-release of its economic bulletin

  • Euro area real GDP could fall by around 5% (mild scenario), 8% (medium scenario), and 12% (severe scenario) this year
  • Under the severe scenario, Q2 quarterly real GDP growth could be -15%, followed by a protracted and incomplete recovery; +6% in Q3, +3% in Q4
  • Under the severe scenario, real GDP is expected to remain well below the level observed at the end of 2019 until the end of 2022
The headline isn’t so much of a surprise since it is the same as what Lagarde has already highlighted in her press conference yesterday. This just adds more colour to it. In case you missed Lagarde’s remarks, you can check them out here and here (Q&A).

EU’s Centeno says he expects finance ministers to agree fiscal measures “much larger” than €27bn

Financial Times with the report on a prediction from Mário Centeno, President of the Eurogroup

  • Eurozone finance ministers will agree a “very large” policy response to fight the economic fallout of coronavirus, the president of the eurogroup has predicted
  • bloc will unleash the “full flexibility” of its budget rules to boost spending
  • expected fiscal measures that together add up to a boost “much larger” than the €27bn aggregate level that was mentioned by Christine Lagarde
Centeno speaking with the FT Link 

ECB leaves rates unchanged, announces new LTRO, expands QE by 120B

ECB announces measures

No changes in any rates
  • ECB raises monthly bond purchases by 120B by year-end (not per month)
  • Additional LTROs will be conducted to provide immediate liquidity
  • Says considerably more favourable terms will be applied during period from June 2020 to June 2021
  • Rates on new LTROs will be 25 bps below average rate applied in eurosystem’s main refinancing operations
  • Raises amount taht counterparties can borrow in LTROs to 50% of their stock of eligible loans
  • Continue to expect QE programs to run as long as necessary and end shortly before ECB ready to raise rates
The market was sniffing around for an interest rate cut and it didn’t come. The euro has risen

Watch: ECB president Christine Lagarde’s press conference at 1330 GMT

All eyes on Lagarde now

The ECB statement was a non-event as expected, with the language on inflation and policy kept similar to the December meeting.

The ECB did officially announce its first strategic review in nearly two decades though and has taken some of the heat away from Lagarde ahead of her press conference; they say that they will provide further details on the scope and timetable later today at 1430 GMT.
As such, the focus of Lagarde’s press conference will be more skewed towards her tone and view on recent changes to the economic outlook i.e. improving data and the US-China trade deal – unless of course she decides to chime in on strategic review questions.
You can watch her live later here:

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