Euro zone

Corona crisis dominates the development of lending business in the euro zone

Lending dynamics in the euro area continued to strengthen in April. This is shown by figures published today by the ECB in connection with monetary developments. According to these figures, the annual growth rate of total lending to euro area residents rose to 4.9 percent. The sharp increase is mainly due to the consequences of the Corona crisis and the support measures taken and is being felt differently by borrowers: While the growth in bank debt of private households slowed down, it accelerated for companies from 5.5 percent in March to an impressive 6.6 percent in April. The dynamics of public sector lending were even stronger. The crisis represents a major challenge for the banking industry. This applies not only to the organisational effort in connection with the aid loans. There are also the massive shifts in demand for credit: while short- to medium-term loans to bridge the crisis are…

Oil price and pandemic put pressure on inflation in the EMU – but the information is currently limited

Inflation in the euro zone weakened again significantly in May due to the fall in oil prices, but also because of the Corona crisis. At the country level, too, consumer price development was unable to escape the downward pressure. The Harmonised Index of Consumer Prices (HICP) in the Monetary Union fell from 0.3 to 0.1 percent, thus approaching zero. The price of energy in the consumer basket fell significantly. This is hardly surprising given the significantly lower oil price compared to the previous year. But the price pressure on other goods also eased. This reflects the weakened demand caused by the lockdown measures, which leaves suppliers little scope for price increases. However, question marks remain regarding the validity of the price data. For one thing, many areas were practically completely shut down by the lockdown. The measurement of consumer prices in these areas has been subject to a high degree…

A perpetual motion machine does not exist

The financial markets appear to be increasingly decoupling from the real economy. This impression can be increasingly gained. All asset classes are benefiting from low interest rates worldwide, very low interest rate expectations and, at the same time, an almost inexhaustible supply of liquidity. In addition, there is a never-ending series of government aid packages. All of this seems to create an environment in which, even in the worst economic crisis in more than 50 years, hope outweighs all current fears and concerns. The result is high valuations in all asset classes; in particular, government and corporate bonds have in some cases strayed far from their fundamentals, as central banks are also buying directly. These observations are not new. Since the financial market crisis, this development can be observed in the financial markets with varying intensity. In the past, the high valuations were at no time a significant risk factor….

The EU Reconstruction Fund: Towards a Transfer Union

There is movement in the discussion about an EU reconstruction fund. Following the Franco-German proposal and the counter-draft of the „Thrifty Four“ last week, the EU Commission has now also presented its concept. As expected, the Brussels plan shows clear parallels to the German-French model. However, the total volume of the fund is to be even greater, at 750 billion euros. Analogous to the Merkel-Macron Plan, Brussels also provides for grants totalling 500 billion euros. In addition, however, the fund is also to grant loans amounting to 250 billion euros. The Commission’s plan even gives details of how much each country would benefit from the fund. As expected, Italy, which was particularly hard hit by the Corona crisis, is to be the main beneficiary. It would receive 81 billion euros in grants and 90 billion euros in loans. By comparison, Germany would receive 28 billion euros in grants and no…

German companies are regaining some hope

German companies are regaining hope. Business expectations for the coming months improved significantly in May following the crash in March and April. The incipient easing of corona restrictions is evidently improving the prospects for many companies again. However, this is not yet the all-clear. The assessment of the current business situation deteriorated even further in May. The crisis is therefore still far from over. But at least the first glimmers of hope are emerging in the battered service and retail sectors. Meanwhile, a deep slump in overall economic output is expected for the second quarter. In the first three months of 2020, gross domestic product had already slumped by 2.2 percent. And this despite the fact that the corona pandemic did not yet have a significant impact on economic output in January and February, and the most severe restrictions did not take effect until mid-March. According to current reports, private…

25 years of the Jumbo Pfandbrief

25 years ago, Frankfurter Hypothekenbank issued a pfandbrief with an issue volume of the then sensational DEM 500m. This developed first into the jumbo pfandbrief market and later into a global market for euro benchmark covered bonds. Large-volume new pfandbrief issues are currently rare. The favourable refinancing offers of the European Central Bank (ECB), which in turn are a reaction to the corona crisis, are leading to the current issue lull. The lack of impulses from the primary market and the ongoing ECB purchases under CBPP3 are exacerbating illiquidity in the secondary market. The trademark of the jumbo pfandbrief, in addition to its high credit rating, has always been the demand for the most transparent prices possible and a high degree of liquidity for investors. In terms of liquidity, we wish the jumbo pfandbrief God speed on its 25th anniversary. From an investor’s perspective, new pfandbrief issues would be desirable…

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