EU Recovery Fund Meeting In Focus

Essential Insights

• The Euro is strengthening to a 4-month high ahead of EU recovery fund talks today, with European bond spreads tightening and European equity bourses advancing.
• AstraZeneca PLC gained positive momentum on the back end of promising initial vaccine test results.
• US covid cases rise 2.2% in a single day

Noticeable FX Movements

The dollar index

The Dollar Index remained under selling pressure throughout the day, reaching a low of 95.90. Prices have retraced on concerning covid-19 case data, which has shown a noticeable increase in cases across the US. In addition, uncertainty surrounding the upcoming EU recovery fund meeting this Friday has provided some short- term strength to the dollar index. Despite the dollar index gaining some momentum, EUR/USD held on to the 1.1400 level following more of an accepting shift from particular EU members such as Denmark who are now willing to accept the EUR 400bln grants under the EU recovery fund. Though despite this progression there remain, other members, namely Netherlands and Austria, that still need more convincing.

Market Tone

Markets are swaying back on forth between risk-on and risk-off. Earlier this morning European indexes slid amid comments from European President Charles Michel citing the chances of a deal being met today were ‘mission impossible’.

Risk FX has gained stronger momentum on the back end of dollar weakness with AUD, NZD, CAD and GBP all trading higher.

US equity futures have been fairly mixed as Wall Street struggled to extend last week’s gains. This comes over uncertainty surrounding the size and shape of the next US stimulus bill, particularly on the consumer side. Bear in mind that with unemployment being so high and initial jobless claims mounting in several million, there is an essential need for direct stimulus intervention and if a bill cannot be agreed on and deployed in time, the current stimulus packages will expire and there will be a period of no stimulus programmes in deployment – spelling disaster for the unemployed.

Covid-19 Latest data

• US CDC reports 67,574 new Covid-19 cases (Previously +74,710) and 877 new deaths (Prev. +918) as of yesterday

• Texas coronavirus cases increased by 7,300 on Sunday (versus +10,158 on Saturday) to a total of 352,030; deaths rose by 93 to total of 3,958; hospitalisation down 66, down from record high; according to the State Health Department

• Florida COVID-19 cases rose by 12,478 on Sunday to a total of 350,047 cases, marking the fifth straight day of +10,000 daily cases. Florida hospitalisation +131 in the past 24 hours. Arizona COVID-19 cases +1.7% vs. 7-day average 2.4%

• South Carolina COVID-19 cases rose by 2,374 on Sunday, the largest single-day increase since the pandemic started

• California coronavirus cases increased by at least 5,790

• New Jersey Governor Murphy said the transmission rate has risen to the highest level in weeks, while the San Francisco Mayor said re-opening has been halted

• Trump admin and GOP leaders to meet at White House today morning to discuss the next round of stimulus funding.

• Germany COVID-19 cases rose by 249 (Prev. +202) to 201,823 whilst deaths rose by 2 (Prev. +1) to a total of 9,086

European Markets

EU members of the 27 block have not yet reached an agreement however more ‘willingess’ to negotiate and accept from stubborn leaders are showing optimistic signs that a deal can be achieved. As noted above there are members such as  Denmark who are now willing to accept the EUR 400bln grants under the EU recovery fund , proposed by European Council Michel, ultimately showing that there is a genuine possibility for EU members to unilaterally agree and push this important fund forward.

This could spell a significant drive in the Euro if you throw your minds back to Q1 of this year, the Euro was the worst G10 FX performer, simply because European leaders could not come together to agree on an economic wide initiative to combat the coronavirus outbreaks, resulting in an economically unprepared Eurozone.

An outcome where the EU recovery fund is approved, not only provides assurance over economic supports but also the hope that EU members can collectively start taking more actions.