July 21, 2020 / 7:12 AM / 20 days ago

ANALYSTS VIEW-'The money matters': EU stimulus deal seen lowering region's risk premium

LONDON, July 21 (Reuters) - Stock markets across the European Union opened higher on Tuesday after the bloc’s leaders clinched an “historic” deal on a massive stimulus plan for their coronavirus-throttled economies.

The Euro-zone blue chips index was up 1% and Germany’s DAX rose 1.1% to five-month highs.

News of the deal saw the Euro rise to a fresh four-month high of $1.1470 before retreating slightly. Italy’s borrowing costs fell to their lowest since early March.

Here are analysts’ views on the impact the deal is likely to have on financial markets:

SYLVAIN GOYON, HEAD EQUITY STRATEGY, ODDO BHF, PARIS:

“It’s important because it introduces a dose of federalism.

“The European risk premium will go down, which will contribute to lower the cost of capital and, everything else equal, lower the price to earning ratio discount with the U.S.

“That’s excluding the positive effect on economic growth, and therefore on earnings per share. All of this should help flows come back to Europe.”

EMMANUEL CAU, HEAD OF EUROPEAN EQUITY STRATEGY, BARCLAYS:

“The deal was expected so it’s not a great surprise, but it’s a significant step towards a more integrated and united Europe, which should boost the region’s appeal to global investors and facilitate its re-rating.

“The rise of the euro isn’t a major risk at the moment because it illustrates the lower risk premium for the region but it could weigh on exporters and Germany and favour a rotation towards the periphery and more domestic sectors.”

ESTHER REICHELT, FX ANALYST, COMMERZBANK:

“This provides a good opportunity for profit taking. For the time being, no further momentum for the euro can be expected from either the fiscal or monetary policy side.

“From now on, it is primarily the recovery of the real economy and the development of infections that will determine how the euro will perform going forward. All in all, however, we believe that EUR-USD around 1.14 is justified. We therefore do not expect a more sustained downward correction.”

HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG BANK:

“For the first time, the European Union will be a major force on sovereign debt markets.

“The money matters. It will support the recovery of the EU/Eurozone economies with a pro-investment, pro-green and pro-growth tilt. But more importantly, it strengthens the cohesion of the region and may help to reduce political risks.”

CHRISTOPHER WONG, SENIOR FX STRATEGIST, MAYBANK, SINGAPORE:

“Simultaneous and coordinated use of monetary and fiscal stimuli is a strong display of EU solidarity and should serve to stabilise market sentiment and secure a stronger economic recovery for EU.

“Together with signs of economic rebound, better containment of COVID infection should support economic activities and the euro.”

MICHAEL HEWSON, CMC MARKETS

“While markets have reacted positively to the prospect that some form of deal will be agreed, it will still need to be approved by all other EU member parliaments over the coming weeks.

“While markets have been buoyed by the prospect that this deal has been agreed, the money in question is but a fraction of what is required to help the likes of Italy, Spain and Greece get out of their current difficulties.

“On a more positive note, what this agreement does do is establish the principal of some form of joint debt issuance, and it is this which can be construed as a baby step towards wider fiscal integration.” (Reporting by Julien Ponthus, Karin Strohecker in London, Sruthi Shankar in Bengaluru, Sumeet Chaterjee in Hong Kong and Tom Westbrook in Singapore; Editing by Andrew Heavens)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below