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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.

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White House: G7 leaders agree to remain committed to global response to coronavirus

White House comments regarding G7 leaders

  • G7 leaders agreed to remain committed to global response to humanitarian, economic calamity stemming from pandemic and to launch a strong and sustainable recovery
  • leaders called for a thorough review and reform process that World Health Organization
  • much of G7 leaders call centered on lack of transparency and chronic mismanagement of the pandemic by the World Health Organization
  • G7 leaders discussed efforts to pool research on coronavirus by sharing data and making it publicly available

G7: “We will do whatever is necessary” to restore confidence

G7 statement

  • We are taking action and enhancing coordination on domestic and international policy efforts to respond to epidemic
  • We pledge to promote global trade and investment
  • Says they are pushing liquidity support and fiscal expansion
Here is the full text:

Statement of G7 Finance Ministers and Central Bank Governors

Consistent with the direction from G7 Leaders, we are taking action and enhancing coordination on our dynamic domestic and international policy efforts to respond to the global health, economic, and financial impacts associated with the spread of the coronavirus disease 2019 (COVID-19). Collectively, G7 nations have already enacted a wide-ranging set of health, economic, and financial stability measures.  We will do whatever is necessary to restore confidence and economic growth and to protect jobs, businesses, and the resilience of the financial system. We also pledge to promote global trade and investment to underpin prosperity.

Our nations are working together to fight the COVID-19 outbreak and mitigate its impact, treat those affected, and prevent further transmission. G7 finance ministries are helping advance this effort by providing the funding needed to respond to the situation. In particular, we recognize the urgent need to increase support for the rapid development, manufacture, and distribution of diagnostics, therapeutics, and a vaccine for COVID-19. We are providing bilateral and multilateral assistance to strengthen foreign governments’ prevention efforts and their health and emergency response systems.

The G7 is committed to deliver the fiscal effort necessary to help our economies rapidly recover and resume the path towards stronger and more sustainable economic growth. Alongside our nations’ efforts to expand health services, G7 finance ministries are undertaking, and recommend all countries undertake, liquidity support and fiscal expansion to mitigate the negative economic impacts associated with the spread of COVID-19.

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G7 says ready to take action, including fiscal tools, where needed

The US Treasury releases the G7 statement on its website

The full statement:

Yeah, not a whole lot in there to really reassure the market that there is going to be a firm commitment for coordinated fiscal and monetary stimulus.
Meanwhile, Japan’s finance minister says that the policy response to the virus will vary from country to country. I guess that pretty much says that not everyone is going to be taking immediate action at this stage – not like the BOJ has much of a choice anyway.