Intesa Sanpaolo : The plan is ambitious and includes a dose of complexity that will allow several levers to be activated in the negotiation phase.
Weekly Economic Monitor – Weekly Economic Monitor – 29 May 2020
Intesa Sanpaolo – Research Department
The large time lapse between the issue of the funds and the repayment of debt could be another factor of facilitation. The injection of funds in countries such as Italy and Spain could be significant, but may make a decisive contribution to the sustainability of debt only if used to relaunch potential growth and efficiently.
The Governing Council of the ECB will meet on June 4.
Economic data have started to signal a recovery from April lows, while also confirming that activity contracted heavily and that the rebound of the economy is by no means proving irresistible. The ECB staff’s new forecasts will be cut.
In the months ahead it could be necessary to step up purchases under the PEPP to aid the refinancing of Member States, although the sizeable plan put together by the Commission will probably induce the ECB to postpone the decision by a few months. On the other hand, we do not expect cuts in policy rate, nor further measures for the refinancing of the banking system in addition to those already announced.
The week’s market movers
In the euro area , focus will be on the ECB meeting. The final reading of PMI surveys for May should outline a recovery from April lows, slightly stronger than indicated by the advanced estimate. Unemployment is expected to increase sharply, in Germany and Italy as well as in average euro area terms, and the rise should continue in the months ahead (in our view, the effects on the jobless rate may lag the cycle trough, hit in April). Lastly, data on retail sales in the Eurozone and on new industrial orders in Germany should both worsen sharply in April.
In the United States , the main data releases for May are due out, but once again will be relatively little use in shedding light on the intensity of the post-lockdown reversal. The most important information will come from initial jobless claims and continued subsidies, that should confirm a gradual slowdown. The May Employment Report should outline job losses of around 10 million, with the unemployment rate rising above the 20% mark. The ISM indices for May should confirm the indications provided by the other surveys, consistent with a more contained pace of contraction. Construction spending is estimated to have crashed in April.
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