August 12, 2020
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August 12, 2020
The Highlights
- The EU’s Green Deal is positioning the continent to increase exports while leading the world on climate neutrality.
- The stalemate over the next fiscal stimulus package in the U.S. Congress is not yet rattling the markets or the dollar, but the Fed’s impatience is becoming evident.
One Big Takeaway
Europe’s economy is on the verge of what could be a once-in-a-century industrial project. Built into the EU’s recent €750 billion coronavirus recovery plan are the principles of the Green Deal, a commitment first introduced by the European Commission in December 2019 to accelerating Europe's transition to clean energy and sustainable infrastructure. If successfully implemented, it could put Europe on a trajectory to become climate-neutral by 2050 — the first continent to do so — and grow its export market in the process.
Traditionally, Europe's exports have been confined to a handful of relatively stable categories: healthcare, IT, and luxury goods. The Green Deal, and the massive infusion of capital now tied to it, could put clean energy technology and other green innovations at the top of that list.
The outstanding question is how the EU member countries develop and implement the Green Deal principles in their individual recovery plans, which are expected to vary widely in a reflection of the pioneering energy efficiency in the Nordic countries to central and eastern European countries still transitioning from coal. The next six months will tell us a great deal about not only the immediate economic recovery from the coronavirus pandemic, but where the earliest investment opportunities are likely to appear, given nation-level incentives.
Chart of the Week
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The unpredictability of the coronavirus pandemic’s market impact has become somewhat more predictable. Analysts were surprised by the S&P 500’s 2Q outperformance in a quarter that was dismal by any definition. That actual earnings beat analysts’ estimates is good news, not just for the investors who benefited, but for market predictions going forward: now there is a baseline from which analysts can refine their projection for the remaining quarters in the year, especially if there is a second wave of coronavirus cases. That new level of certainty is likely to boost stock prices.
east Spotlight
Money flows in China
New bank loans in China, including both household mortgages and corporate loans, decreased by a respective 23% and 71% as the pandemic’s ground zero continues to recover. This trend is separate from China’s monetary policy, which seems likely to continue its lax approach to keep conditions as accommodating as possible amid a recent market rally. Thus far, China’s central bank has led to an 11% YoY increase in the country’s money supply.
West SPotlight
Inflation lurks in the U.S.
As the U.S. economy continues to reel in the wake of the ongoing pandemic, inflation is on the way down: it fell below 1% in June, in defiance of what could have been inflationary supply shocks as businesses cut costs and laid off workers. The exception is food, where inflation has risen thanks to a combination of virus-sensitive factors: the stocking-up that comes with limited grocery trips, limited supply as food companies halt their operations, and the increase in at-home meals over restaurants.
Data to Watch
- 17 Aug: Japan’s 2Q GDP growth rate will offer another indicator as to the country’s rebound from the coronavirus.
- 19 Aug: Both the U.S. and Canada will release their year-on-year inflation rate numbers, providing more context for the low rate registered for June.