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750,000,000,000 Euro

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What would you spend that much money on? Never mind if you don’t know. The EU-Commission does and financial markets love it. Indeed the EU-recovery fund that the EU-Commission proposed is a forceful response to the economic challenges of the current crisis that eases the pressure for the ECB. A formal agreement of the rescue programme is unlikely to be approved at the June 18 meeting of EU-leaders already and is more likely at the September EU-summit. The new plan shows a willingness to accept mutualisation of at least some of the costs of dealing with the pandemic and illustrates an increasing commitment from EU policy makers to take measures in order to keep the euro area (and the EU) viable. This should be a net positive for euro area financial assets.
Our tactical indicators hint that the ongoing equity market rally has further to run, as the S&P 500 has more upside after breaking above important technical resistances. We also observe positive trends for emerging market equities in Asia, which are likely to persist into year-end. US sanctions in retaliation to recent events regarding Hong Kong could be another headache for Beijing as it tries to steer China’s economy back to growth. We revised our GDP-growth forecast for China to just 1% this year.
Finally, a less than optimal management of the pandemic in the UK and a maverick approach to the post-Brexit trading negotiations with the EU will probably weigh on the expected recovery in the second half of the year. As a result, the Bank of England may have little choice but to push rates below zero as the year ends.

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