Our Experts Comment the Times Series

See All the Comments

Eyes on Europe

22 April 2020 by jbchevrel

Today Europe outperformed the US in a typical ‘ECB move’. Tighter intra-EMU spreads, lower Main/IG, lower € vs other reserve currencies. According to yesterday’s BBG piece, the ECB was set to discuss accepting HY paper as collateral. That fueled speculation of ECB adding fallen angels to the universe of securities it can buy, just like the Fed did about a month ago. We have seen XOver compress vs Main today as a result. Looking beyong, there was a MNI piece today reporting Lagarde said the GC never discussed using helicopter money, and the ECB has not decided whether doing so would contravene the EU's prohibition on monetary financing. This was in a response to a letter from Belgian MEP Lamberts. On the fiscal side of the equation, tomorrow, EU leaders will follow up, by video conference, on the EU's response to the COVID-19 outbreak. It will be the 4th video meeting of this kind. In his letter issued on 21 April, President Michel invited EU leaders to discuss joint action to overcome the COVID-19 crisis. He presented a joint roadmap for recovery, prepared together with President von der Leyen. The roadmap focuses on the single market, massive investment efforts, EU global action and on better governance and resilience. Primary remains relatively strong. Spain’s new 10-year bond attracted over €97bn of orders. This follows yesterday’s €100bn of orders for Italy’s bond auction, showing just how strong appetite for peripheral govies is. In the corporate world, there was a new €1B 5y deal from Auchan, pricing MS +320. This contrasts with economic/debt fundamentals. According to the IMF, the €zone’s GDP will fall -7.5% this year, Germany -7%, Italy -9.1%. IMF sees €zone fiscal deficit at 7.5% GDP, with Germany 5.5% (although some project 7%+) Italy 8.3%.