Articles

September: A Typical Scary Month for Investors
September 30, 2020

By Deepta Bolaky  @DeeptaGOMarkets Poor Month for Markets Investors are generally apprehensive of the month of September as on average it is marked as the worst month for the stock market. After a staggering rally in August driven by broad-based ...

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Jackson Hole Symposium: Markets Bracing for More Volatility
August 28, 2020

By Deepta Bolaky  @DeeptaGOMarkets The annual Jackson Hole Economic Symposium rarely goes unnoticed as is an exclusive central bank conference which fosters open discussions about global policy matters. The economic event is sponsored by the Fed...

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US Elections: COVID-19, Policies and Markets
August 14, 2020

By Deepta Bolaky  @DeeptaGOMarkets The Political Event of the Year 2020 The most-waited political event of the year is fast approaching: the US elections will take place on the 3rd of November. The nominees of the two main political parties - Rep...

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Tesla and Microsoft Corporate Earnings Results
July 23, 2020

By Deepta Bolaky  @DeeptaGOMarkets Microsoft and Tesla, the two leaders in their respective industries reported their quarterly earnings results on Wednesday after the market closed. Both tech companies reported earnings exceeding expectations b...

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Coming Up This Week: Big Banks and Netflix
July 14, 2020

By Deepta Bolaky  @DeeptaGOMarkets The earnings season will kickstart with big banks like JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Bank of America, Morgan Stanley, and tech stock like Netflix. Investors are probably bracing themse...

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Melbourne Lockdown: Local Investors Mull Worsening Economic Outlook
July 8, 2020

By Deepta Bolaky  @DeeptaGOMarkets Following the highest number of coronavirus cases in a single day, the Premier of Victoria, Daniel Andrews reinstated “Stay at Home” restrictions across metropolitan Melbourne and Mitchell Shire from 11:59 ...

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A Cautious Fed
June 12, 2020

By Deepta Bolaky  @DeeptaGOMarkets A Cautious Fed FOMC Meeting Investors were eagerly looking forward to the Fed’s statement and forecasts for clues on how the Fed is viewing the health of the economy after easing lockdown measures. Global ce...

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Weekly Summary: A Bloodbath in the Stock Market
June 12, 2020

By Deepta Bolaky  @DeeptaGOMarkets Governments and central banks supportive policies and coronavirus updates remain the primary factors that are driving risk sentiment in the financial markets. It was a Fed-centric week while fears of a second o...

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Weekly Summary: Recovery Hopes and More Stimulus
June 5, 2020

By Deepta Bolaky  @DeeptaGOMarkets The Positives Investors were broadly focused on the positives this week. Despite the deteriorating relationship between two of the world’s most powerful economies, which has the potential to turn into a new ...

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EURUSD: EU Recovery Plan and EU’s Frugal Four
May 27, 2020

By Deepta Bolaky  @DeeptaGOMarket EU Recovery Fund After a standoff between the EU and Germany, following a critical ruling on ECB’s quantitative easing program by Germany’s constitutional court, the gradual reopening of economies of member ...

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Tyson Foods & Skyworks Earnings Reports
May 11, 2020

By Deepta Bolaky  @DeeptaGOMarket Tyson Foods & Skyworks Earnings Reports Tyson Foods and Skyworks are among the two major earnings results released on Monday. The meat processor reported its quarterly results before the open while Skyworks S...

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Apple Inc. and Amazon.com, Inc
May 11, 2020

By Deepta Bolaky  @DeeptaGOMarket Apple Inc. and Amazon.com, Inc The last two of the five most prominent technology companies, Apple Inc. (AAPL) and Amazon (AMZN), which form part of the FAANG group, have reported interesting quarterly earnings ...

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The Lockdown, the Fallout and the Roadmap to Recovery
May 1, 2020

By Deepta Bolaky  @DeeptaGOMarkets Global Lockdown In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global econ...

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US Dollar and Gold in Tandem
January 24, 2020

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2020 Kicks off with US-Iran and Climate Change Crisis
January 15, 2020

By Deepta Bolaky  @DeeptaGOMarkets The start of the year was marred by the escalating tensions between the US and Iran while extreme weather conditions across the global triggered fierce debates about climate change. What do we know so far ab...

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Ready to give it a GO?

By Deepta Bolaky
 @DeeptaGOMarket

EU Recovery Fund

After a standoff between the EU and Germany, following a critical ruling on ECB’s quantitative easing program by Germany’s constitutional court, the gradual reopening of economies of member states within the Eurozone has brought some optimism.

The downside risks for the Eurozone and its shared currency have somewhat eased on the fact that Europe, which was the epicentre of COVID-19 after China, might have gone through the worst phase of the pandemic. The sentiment for the Euro was also buoyed by the EU Recovery fund proposed by Chancellor Angela Merkel and President Emmanuel Macron to help Europe’s mostly hit countries.

Unfortunately, the optimism over the coronavirus fund proposal, which aims to show unity in overcoming the crisis and to achieve quicker economic recovery, was short-lived.

Europe’s Frugal Four 

Amid an unprecedented crisis, the Franco-German proposal was to provide support and reinforce EU financial relations and show that Europe is standing together. Austria, Denmark, the Netherlands and Sweden, dumbed as the “frugal four” put forward a counter-proposal that highlights the diversion of opinions in helping the Southern members states.

Grants or Loans

The Franco-German proposal is about “overcoming the crisis united and emerging from it stronger”. Both leaders proposed to make outright grants to help countries in need. They want to launch a temporary fund of 500 billion euro for EU budget expenditure:

“This would not provide loans, but rather budget funding for the sectors and regions hit hardest by the crisis. We firmly believe that it is both justified and necessary to now provide funding for this from the European side that we will gradually deploy across several European budgets in the future.”

In contrast, the frugal four wishes to provide loans rather than grants to southern European countries and expect the recipients of loans to comply with the fundamental principles of the EU and commit to strong reforms in repaying the loans. Their two-year and “one-off” proposal appears to also outline how those countries should use the funds and target sectors that are mostly hit based on an assessment.

The coronavirus pandemic is testing the solidarity of European members and is threatening to reawaken a euro crisis. Southern countries like Greece, Italy and Spain lacked the fiscal space they need to put forward an economic stimulus package to support their economies, compared to Northern countries. 

Disparity? Compromise?

Both proposals are saying “yes” to emergency aids to assist with recovery, but the disparity lies on how the funds will be financed to respond to the economic wreckage. The size of the emergency fund, the conditions of the funds or whether it will be grants or loans will be a compromise the markets are expecting to see. However, the type of compromise might be a key factor in determining the relationships of EU members.

Unprecedented times probably need unprecedented Unity.

Euro – The Shared Currency

The fact that Europe may have gone through the worst phase of the coronavirus has somewhat eased the downside risks of the shared currency. But the current geopolitical tensions with China and uncertainties on the EU Recovery plan are putting a lid on the upside momentum of the Euro.

After the sharp plunge in March, the EURUSD pair has been trading within the 1.08 to 1.09 range. Yesterday, the better-than-expected IFO Surveys in Germany has helped the pair to hold ground and hover around the 1.09 level. The recovery plan could mitigate the selling pressure and allow a probable move above 1.10 level if there is a compromise that satisfies the frugal four.

EURUSD

Source: Bloomberg Terminal

The immediate attention turns to the European Commission which is supposed to unveil a draft recovery plan on May 27th, 2020.

By Deepta Bolaky
 @DeeptaGOMarkets

Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

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