Today’s Fundamental Focus

Daily Analysis – 5th June 2020

Europe’s PEPP Programme

As of midday yesterday, the EUR was seen to have strengthened again after ECB announced expansion of its crisis asset purchase program -PEPP.

What is the PEPP Programme?

PEPP stands for the ‘Pandemic Emergency Purchase Programme‘ which has been increased by €600 billion to a total of €1,350 billion. In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households.

Impact of PEPP onto the Financial Markets

The emergency program announced in March was meant to keep borrowing costs lower, which it has done so for countries in the euro zone, which includes the 19-member region that uses the euro as its common currency.

  • The announcement contributed to a further reduction in borrowing costs, with the yield on Italy’s 10-year government paper dropping from session highs above 1.56% to 1.40% shortly after the decision. There have been similar moves on Greek, Portuguese and Spanish debt.
  • The euro see-sawed, initially turning positive on the news to trade about 0.25% higher against the U.S. dollar. It then dropped after disappointing macroeconomic projections, to rebound again moments later.
  • The Eur has also taken the CHF mildly higher as of the European close yesterday. On the contrary, the GBP is the weakest one as pressured by the selloff against Euro.

US-China Phase 1 Deal

  • According to analysts at Morgan Stanley, the U.S. ‘will not want to break the phase one deal’ with China
  • Last month, the U.S. President Donald Trump did say that he was “very torn” about whether to end the phase-1 deal, which raised concerns and alerted the markets of a probable and damaging tariff fight.

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