Germany’s landmark ruling this week to ask the ECB to assess whether its asset purchases violate the central bank’s mandate has generated significant discussion on what this means for future asset purchases and the sustainability of the euro project more generally. Market veteran John Butler puts the ruling into an historic context to argue that the unique role of the Bundesbank in EMU leaves it with significant soft power that could potentially bring down the euro in a crisis. A must read.
We turn to the US for our next exclusive where Dominique Dwor-Frecaut looks at the possibility of debt holidays. The policy response in the US has been already been substantial but with the support poorly targeted and credit conditions tightening she sees a need for further economic support ahead of the November election.
On Asia, Caroline Grady digs into South Korea’s effective handling of the COVID crisis and the projected outperformance of the economy this year. She points out that a very favourable starting point on policy space also plays a role.
I take a look at the relationship between lockdowns and mobility data. In general, the stricter the lockdown, the lower the level of mobility but with some interesting exceptions.
Finally, we updated our US election tracker where prediction markets continue to see Biden winning the November vote as well as our daily COVID tracker.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Germany’s landmark ruling this week to ask the ECB to assess whether its asset purchases violate the central bank’s mandate has generated significant discussion on what this means for future asset purchases and the sustainability of the euro project more generally. Market veteran John Butler puts the ruling into an historic context to argue that the unique role of the Bundesbank in EMU leaves it with significant soft power that could potentially bring down the euro in a crisis. A must read.
We turn to the US for our next exclusive where Dominique Dwor-Frecaut looks at the possibility of debt holidays. The policy response in the US has been already been substantial but with the support poorly targeted and credit conditions tightening she sees a need for further economic support ahead of the November election.
On Asia, Caroline Grady digs into South Korea’s effective handling of the COVID crisis and the projected outperformance of the economy this year. She points out that a very favourable starting point on policy space also plays a role.
I take a look at the relationship between lockdowns and mobility data. In general, the stricter the lockdown, the lower the level of mobility but with some interesting exceptions.
Finally, we updated our US election tracker where prediction markets continue to see Biden winning the November vote as well as our daily COVID tracker.
Enjoy!
Bilal
The Hidden Significance Of The German Constitutional Court Ruling (9 min read) This week the German Constitutional Court (GCC) ruled that the Bundesbank must clarify that its participation in unconventional, ECB-mandated bond-buying programmes does not violate the German Constitution, or Basic Law (Grundgesetz). While the decision is highly technical and has already been interpreted in multiple ways by those on either side of the dispute, it highlights the unique role that the Bundesbank plays in EMU.
Indeed, it strengthens my long-held view that, notwithstanding its de jure subordination to the ECB since 1999, the Bundesbank retains a huge amount of ‘soft’ monetary and political power – enough to potentially bring down the euro in a crisis…
(John Butler | 7th May, 2020)
Could A US Credit Crunch Bring About A Debt Holiday? (4 min read) Despite its exceptional size, US policy support could disappoint due to poor targeting. With presidential elections in November, this suggests further support that could give a greater role to debt forbearance this time around.
The US policy response to COVID-19 so far dwarfs that of most other countries. Yet it may not be enough to engineer a V-shaped recovery, in part due to lack of targeting. Out of $6tn (about 30% of GDP) deployed by the Fed and Congress, only $0.7tn consist of transfers and tax cuts for households…
(Dominique Dwor-Frecaut | 7th May, 2020)
South Korea: Fiscal Buffers Eased The COVID Crisis (2 min read) South Korea is an often-cited example of a country that has successfully controlled COVID. And the economic fallout looks to be significantly less pronounced there than the dramatic declines reported elsewhere. But the country’s resilience cannot all be attributed to the more effective COVID response. Also important was having significantly greater policy space than most going into the crisis, thanks to low public debt and a very prudent fiscal position, which facilitated the required response from the budgetary and monetary authorities…
(Caroline Grady | 7th May, 2020)
Which Countries’ Populations Are Following Lockdown Rules? (3 min read) In this column, we take a closer look lockdown rules and mobility. This is especially important as governments start to ease them. Starting with lockdown policy, we quantify how strict stringency rules are. A good resource for lockdown rules is the University of Oxford’s Stringency Indices, which quantify the degree of lockdowns (e.g. workplace restrictions, school closures and public gathering bans) into an index. A score of 100 would mean the most extreme lockdown, while zero would mean no restrictions…
(Bilal Hafeez | 7th May, 2020)
US Election Tracker President Trump’s approval rating has remained largely stable in the past week and back within the range seen through most of 2018/19. This could change in the coming weeks depending on whether the reopening of parts of the economy triggers another rise in COVID infection rates. Prediction markets have also been relatively stable and continue to show Biden winning the November election. But the strength of the US recovery from Q3, and in particular the employment situation and the stock market, mean a lot can change before the vote…
(Bilal Hafeez | 7th May, 2020)
Global COVID-19 Tracker In the DM world, we see small surges today compared to yesterday’s values with UK, Sweden, and Finland registering 3% case increases. They are followed by US, France, Portugal, and Canada which recorded 2%. Others barely saw any increases. On deaths, Germany, Belgium, and Canada lead with 4% increases, while US, Sweden, and Ireland come next at 3%…
(Bilal Hafeez, Stefan Posea | 7th May, 2020)
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)