Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
Last thoughts ahead of the EUCO videoconference
Christopher Dembik
Head of Macroeconomic Research
Summary: Tonight, EU leaders will discuss the latest health and economic response to the COVID-19 outbreak. We don't expect any major achievements regarding coronabonds due to the strong opposition of Austria, Germany and the Netherlands. In these countries, debt mutualisation is anathema. Most of the discussion should be about activating or not the ESM credit line. At the occasion of the videoconference, the EU could announce the creation of a permanent European Crisis Management Centre.
The EUCO videoconference will focus on four major themes:
- Limiting the spread of the virus
- Providing medical equipment, with a focus on masks and respirators
- Promoting research into a vaccine
- Discussing solutions to mitigate the socio-economic consequences
We expect a technical discussion with no final decision about the EC proposal for an European employment reinsurance that would top up national schemes.
The EU might confirm the creation of a permanent European Crisis Management Centre in order to better coordinate the EU health response in the future.
EU leaders will lengthily discuss two major stumbling blocks:
1. The ESM emergency credit line (for more details on that point, please read our report focusing on the latest Eurogroup meeting).
The Dutch finance minister has been the most vocal opponents against activating the ESM credit line as a first emergency response for member states in need. A technical aspect, that also matters a lot politically, will need to be clarified: it is still unclear whether to attach or not conditionality to ESM credit line. It will certainly be of prime importance to lift conditionality or to soften it (i.e. making sure that the credit line is only used to cope with the effect of the COVID-19 outbreak) to gain support from Italy, Spain and France. We are carefully optimistic that an agreement can be reached either tonight or at the next EUCO videconference.
2. Coronabonds (for more insights, see our latest report Coronavirus Economics: The case for coronabonds).
Inherited divisions from the past crisis seem to prevent the launch of coronabonds for the moment. The below map, courtesy of our graphic designer Julie, shows EU countries’ support to coronabonds. Germany, the Netherlands and Austria have clearly repeated over the past few days their strong opposition to this new instrument. Yesterday, France, Italy, Spain and six other euro area governments signed a letter in favor of their implementation. In a last move ahead of the EUCO videoconference scheduled tonight, the Austrian PM rejected one more time the perspective of common EU issuance. Being realistic, we don’t see much what could unlock negotiations tonight. Given that a large part of the videoconference will be probably devoted to the ESM credit line, which will already lead to tough talks, it is likely that EU leaders will barely examine the possibility of coronabonds. This issue is likely to be discussed later.
On a final note, there has been a lot of noise over the past 24 hours about tools that the ECB could use to help countries in disarray. Yesterday, the ECB said to be “broadly in favor of activating OMT if needed”. In our view, the OMT program is certainly not the most adequate instrument to deploy in the current crisis due to its lack of flexibility (i.e. the ECB can only buy government-issued bonds that mature in 1 to 3 years). Unless OMT modalities can be changed, which is far from certain, it makes much more sense to adopt a multi-tool approach including ESM purchase (or ideally coronabonds administrated by the ESM) and PEPP (the ECB’s Pandemic Emergency Purchase Program).
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)