European Outlook: What’s Driving Markets?
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- The Euro demonstrates a modestly positive outlook against the US dollar
- Vetos threaten the EU’s financial aid package
European equities are pointing lower in today’s early hours of the market session. Yesterday’s markets demonstrated sluggish trading while they open slightly lower today. Tuesday’s session saw the markets close mixed. With the FTSE 100 down by 0.87%, the German DAX essentially flat at negative 0.04%, and the CAC40 a little higher by 0.21%. In today’s early trading, the DAX is showing a decline of 0.40%, followed by the FTSE 100, down by 0.30%, and the French CAC40 also negative by 0.34%.
The Euro, however, is modestly positive against the US dollar. The currency pair is now trading higher on the day at 1.1882, with an open price of 1.1860 and a low of 1.1850.
What’s the Current Situation in Europe?
What’s driving the markets? In a bid to keep the economy afloat in the short term, the EU needs to approve the financial aid package of EUR1.8t. However, not all EU members agree with this recovery package. For instance, Hungary and Poland have made objections against this budgetary measure.
The disagreement stems from the proposal’s regulations that will allow the EU to suspend funding to member states which are deemed as not compliant with its values or that could potentially put its values (such as independent rule of law) at risk. As result, Polish and Hungarian governments are claiming that they are being targeted by this mechanism.
Nevertheless, some analysts believe that Hungary and Poland will be able to reach a compromise. This package will offer them billions of euros to support their economies and workforces. Brussels officials have stated that the proposed budget deal will respect the sovereignty of the member states.
Unanimity is required for the declaration to pass, which means that the legal process will stay on hold until Warsaw and Budapest withdraw their veto. According to a senior EU diplomat, delays could lead to a serious crisis. Especially if the numbers of confirmed Covid-19 cases keep rising.
Restrictive Measures Characterize Life in Europe
Across Europe, restrictive measures are now being put in place in a bid to curb the pandemic which is proving more severe in this second wave than it was in the spring. The healthcare systems of some EU countries are barely keeping up. Restaurants, bars, gyms, and cinemas are closed in many member states. While in some national curfews are being observed.
Taking this into consideration, European Central Bank President Christine Lagarde stated that the newly discovered vaccine will not be a “major game-changer” for the economic outlook of the European Union. As EU countries are facing another weak quarter, the European economy is set to contract during the winter months and the new year. The central bank is now focused on keeping the economy afloat. So, EU members are coming together to find a coordinated approach in dealing with the health crisis.
It was expected that the vaccine will be available in the next year. According to President Lagarde, this certainly does not mean that 2021 will not present economic and financial challenges. At least for the first half of the year anyway.
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