21 July - update from our investment partner

  • 21st July 2020

Market reaction positive to agreed EU recovery fund

What has happened

After another late-night meeting the EU have agreed a recovery fund. The market reaction was positive but slightly muted, suggesting this had largely been baked into the price during Monday’s session.

EU Recovery Fund finally over the line

The final form includes €390bn of grants alongside €360bn of loans. The so called Frugal Four will also see an increase in their budget rebates which were previously slated to be stopped post the UK leaving the EU. With this compromise, EU leaders were able to insert some governance around both reform and adherence to the rule of law. The EU budget for the next seven years was also agreed at the summit and European Council President Michel described the deal as a ‘strong deal’ and that it pointed to European unity in the face of the pandemic.

Oxford vaccine shows progress

The Lancet medical journal showed that the University of Oxford vaccine increased levels of both antibodies and T-cells whilst not causing serious side effects. These reports were actually in relation to the Phase I trial which took place far earlier in the year, but the results are as good as the market could expect. Phase II and III trials are occurring concurrently at the moment and therefore the vaccine is already on an accelerated path. Regardless it will be some months until the vaccine can be proven as widely effective or not, and for it to be distributed on a meaningful scale.

What does Brooks Macdonald think

We will be the first to admit that this (long) weekend delivered more than we were expecting and that there had been more progress behind the scenes than we predicted. Equally the final form of the deal contained a larger ratio of grants vs loans than looked possible only a few weeks ago. One note of caution is that this still doesn’t deal with the real crux of the matter. There is still a large division between the views of the North and South over the EU project going forward. Both have valid arguments with the North cautious of the perceived fiscal imprudence of the South and the South feeling trapped by the single currency which prevents competitive devaluation. The EU recovery fund is a positive step forward but it by no means suggests fiscal unity post the crisis.

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