Nothing like a breakthrough to trigger a breakout.

Last night, the EU Council managed to put aside differences and come to an agreement over the Covid Relief Fund structuring. There were no surprises in the make-up with €390m in grants and €360m in low interest rate bearing debit. The deal is foremost a win for the integrity of the European Union. Peripheral Banks are outperforming strongly today, as are risk assets generally. European indices have broken their recent ranges to the upside, with the DAX, SX5E and FTSE MIB all above their June highs. While the announcement has certainly boosted sentiment, our house view remains that this crisis will need more debt mutualisation. We also believe that the fundamentals of the euro is an impediment to successful stimulus of the periphery economies. Note that the euro is trading marginally weaker vs the dollar today.

If a watched pot never boils, does a watched EC never come to an agreement?

After a weekend of long drawn-out discussion, we are beginning to hear positive murmurs around the Covid-19 relief fund emanating from the continent, though no tangible agreement as of yet. It seems that the ‘Frugal Four’ are softening their stance around how the relief package is funded, with an apparent agreement of €390m in grants, and the remainder facilitated by low-interest loans. As mentioned, the deal is not over the line yet, but there is a chance we get further clarity after they resume talks from 4pm today. We see peripheral banks as one of the main beneficiaries of an agreement, as well as risk assets more generally. The Euro climbed to an 18-month high against the dollar earlier as well, however has since faded slightly.

Fairly quiet start today after the hefty moves over the last week. Seems like EU investors have taken some time to decide their next move (reasonable/healthy) hence the lower volumes across the board. Aside from that, it is encouraging to hear our charts team confirming that more defensives are making it to the 3-month rel lows list and more cyclicals to the 3-month rel high list. The trend continues to be in favour of the bulls so we will see if it keeps up this week. One to watch is the SX5E, which has been up for the last 3 weeks and hasn’t managed 4 in a row since September – hopefully it will this week. Also note that all EU indices started the session in the red and some have slowly made their way up already.

After a last minute rally in the US overnight (as the White House prepares for further stimulus), EU equities followed and are currently set to finish the week on a positive note. Volume wise, they have been rather poor despite having expiries today (CAC the exception). Nearly all indices are trading below their turnover AVATs – doesn’t look like there is any real conviction to the bounce, does it? Good news from the Eurostoxx futures though, which are back trading above the 2745 support after making an all-time low yesterday (phew!).

With more and more countries in Europe heading towards the lockdown exit in the (hopefully) not too distant future, the region has generally traded better today.