Fiscal fun

Posted by: Paul Donovan

20 Jul 2020

Daily update

  • The leaders of the EU have failed to come to an agreement on the recovery fund, and are still talking. This really should not be a surprise. Every EU summit of any importance always drags on longer than scheduled. It seems that EU leaders are only capable of agreeing anything when massively sleep-deprived. The anti-fund/frugal faction has agreed to the principle of grants being part of the recovery fund.
  • US fiscal policy is in focus, with US President Trump to meet Republican leaders to discuss the fifth fiscal package of the pandemic. There is some urgency, as the additional unemployment benefit payments are due to expire at the end of this month. The economy would not respond well to an abrupt ending of these payments.
  • There has also been some concern in markets about the spike in reported cases in the US. Fear of the virus is less than it was, so the economic response is less than it was – but fear has clearly risen. This has to be balanced against the expectation of further fiscal help. Results of Oxford University's vaccine trial are due today.
  • German producer price inflation, a better measure of corporate pricing power than consumer prices, was weakened by low energy prices.

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