For the first time since the outbreak of the epidemic, EU leaders have gathered at a summit held in Brussels despite signs of a possible second wave of COVID-19 in the world. The main issue to be debated is the acceptance of the plan to rebuild the European economy and how to finance it. This may be of major importance for the European stock exchange indices and the euro.
The plan worth 750 billion euros should help the European economy to recover from the pandemic crisis. However, its acceptance may be opposed by countries such as Denmark, Sweden, the Netherlands, or Austria. There is also talk of the possibility of a veto by Hungary. An additional topic of discussion will be another seven-year budget of the European Union, which failed to be agreed at the summit in February.
At the moment the stock exchange indices in Europe do not seem to be showing any directions, but this may change after the weekend depending on the outcome of the summit in Brussels.
According to the currency options market, according to Bloomberg's data, investors in the EUR/USD pair are more bullish in the near future. It seems that if there is a breakthrough in the acceptance of the recovery plan for the European economy, the euro could continue to gain in value. Only the breakdown of talks and the lack of any agreement and compromise could lead to a change in sentiment.
From the economic situation of the euro area, the latest macroeconomic projections prepared for the European Central Bank have appeared today. Thus, consumer inflation is expected to reach 0.4% in 2020, 1,0% in 2021, and 1,3% in 2022. Meanwhile, GDP is expected to contract by 8.3% in 2020, to increase by 5.7% in 2021, and by 2.4% in 2022. The data, therefore, show that GDP is expected to fall and inflation to rise, which in the longer term could lead to a renewed phase of an inflationary economic slowdown.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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