Weekly Market Insight

Latest Economic & Market Update 10th July 2020

10th July 2020

Good afternoon, it is 10th July 2020 and here is your economic and market update from BlackBee. Today’s focus:

  • Graph of the Week: ECB restores debt investor confidence
  • Paschal Donohoe to be President ofthe  eurogroup of Eurozone finance ministers

Graph of the Week: ECB restores debt investor confidence

Source: Bloomberg July 2020

In March 2020, stocks collapsed and borrowing costs increased sharply as the pandemic halted economic activity. The sudden stop in economic activity resulted in governments having to borrow heavily. Due to greater risk, yields on government bonds in southern European countries were much higher than those in northern European countries. As the debt levels climbed for each country, the sharp rise in borrowing costs posed a significant risk. The rise in borrowing costs also saw credit ratings for countries suffer. In April, Italy was downgraded by Fitch to a single notch above investment grade. The ECB announced in March that it would begin the Pandemic Emergency Purchase Programme which entailed it purchasing €750 billion worth of bonds to tackle the heightened level of risk caused by the sharp rise in yields. As the downturn of economic activity unfolded and economic forecasts started to paint an even worse picture, the ECB expanded the bond-buying programme by €600 billion to €1.35 trillion. Yields on government bonds in the Eurozone have now fallen to levels that were last seen prior to the crisis in early March.

This week the Italian 10 year yield fell to 1.2%, Spain’s 10-year yield fell to 0.4% and Greece’s 10-year yield fell to 1.1%. The spread between the German 10-year yield and Italy’s 10-year yield, an indicator of risk in the Eurozone, has also narrowed. A €750 billion recovery fund has also given investor confidence seeing the programme as a common effort to share the financial burden of the crisis. The ECB appears to have restored confidence in debt investors. However, in the last week, the pace of the purchasing programme by the ECB declined by 26% as the ECB tapers off its purchases. If the tapering off of purchases continues, we could potentially see the spreads widen again.

At a glance:

  • Investors moved into safe havens on Thursday as Florida recorded its biggest one day increase in coronavirus related deaths.
  • New jobless benefit claims last week totalled 1.31m, a slight decline from the week prior. Total continuous claims equalled 18.1 million last week.
  • Paschal Donoghue, Irelands finance minister is to become the next president of the eurogroup of Eurozone finance ministers, beating candidates from Spain and Luxembourg.

Best & Worst Performers of Large Cap US Stocks on Thursday
Click the image to enlarge

Global Market Update
(as at close of markets 09/07/2020)