Market movers today
Following the agreement on a new EU budget as well as the recovery package yesterday, focus will now turn to the ratification process where the national parliaments will have to consent to expanding the so-called ‘headroom’ (see below). Also the EU parliament will need to be heard. We do not expect the national parliaments to become a hurdle, but the EU parliament may likely be disappointed regarding the size of the final budget.
The calendar is again today fairly thin regarding economic data releases.
Selected market news
A week ago, UK Prime Minister Boris Johnson confirmed that plans were being drawn up that would eventually ban the Chinese telecom provider Huawei as a supplier of UK infrastructure from 2027. On Monday an extradition treaty with Hong Kong was then suspended indefinitely and yesterday US secretary of state Mike Pompeo was in London discussing primarily relations with China. UK MPs told the Financial Times that Mr. Pompeo had urged the UK to join an alliance standing against the actions of the Chinese government towards Uighurs and congratulated the British government on its actions towards Huawei. Previously, Boris Johnson had struck a more diplomatic tone saying that “a calibrated response” must be in place towards China, while at the same time referring to the country’s economic significance. The tougher stance on China has been criticised as being an ‘on demand’ action from the US, as the UK seeks to reach a UK-US trade deal.
More specific details on yesterday’s agreement on the EU budget and recovery package have started to emerge. This is specifically so with regards to the reform governance mechanism required by the Netherlands in particular. The mechanism works in a way such that any member state can at any time block transfers to another member state if the member state receiving funds under the recovery package is not at the same time implementing reforms in order to improve structural economic imbalances. However, in order for the mechanism not to introduce too much bureaucracy the review process of any case must last a maximum of three months and the process and subsequent decision will remain with the EU commission. With regards to the link between the budget and the ‘rule of law’-principle EU leaders largely refrained from handling the issue and have asked the commission to draw up the finer details. However, it was decided that a qualified majority of countries should be able to block payment of funds to countries not in alignment with said principle. Looking ahead, the EU budget must be ratified by the parliament, and given that the difference between actual EU spending and the maximum amount of funds that can be raised from EU member states (the ‘headroom’) stand to be increased from 1.2% of EU GNI to 2% also the national parliaments must be heard.
US stocks ended the day only marginally higher after seeing gains in the early hours of yesterday’s trading sessions. The reason was primarily news out that a new rescue bill might take longer than expected to pass Congress, implying that there is a risk of existing stimulus measures expiring before new ones are put in place.
