It's the principle of the thing

Posted by: Paul Donovan

19 May 2020

Daily update

  • Germany and France have agreed on a European fiscal deal. The EU would be able to borrow money to fund grants to economies according to need (not size or political influence). The principle is that of fiscal confederation. There is still opposition within the EU, and the scale is relatively small. Markets are focusing on the principle rather than the scale, however.
  • Several central bank speakers crowd the agenda. ECB Chief Economist Lane can claim to be the voice of economic leadership at the bank. Powell and Kashkari of the Fed (not economists) also speak. Central banks can do little beyond stopping a liquidity crunch. Governments took income away from consumers and companies. It is for governments and fiscal policy to give it back.
  • UK March unemployment data is due. Keeping unemployment as low as possible is key to reducing fears about job security. That allows a stronger economic bounce back.
  • US President Trump admitted to daily drug use (investors have no faith in the anti-malaria drug, so did not react). The German ZEW survey of economic forecasters is due. A quick glance at the range around consensus forecasts reminds us that this is unlikely to offer useful information.

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