The European Securities and Markets Authority (ESMA), the EU securities markets regulator, recently published its second risk dashboard for 2020 which sees a continued risk of decoupling between asset valuations and economic fundamentals. During the third quarter of 2020, EU financial markets have continued their recovery and equity market valuations have edged up further. There are increasing signs of strong geographical and sectorial differentiation across financial markets with fixed income markets seeing large-scale valuation increases across various segments such as emerging markets, investment grade and high yield. Credit rating downgrades have been slowing and investment funds recorded inflows across asset classes, especially for bond funds.

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Financial markets largely recovered from March’s acute stress, according to the third BIS Quarterly Review1 of 2020.This was supported by both monetary and fiscal policy, and investor sentiment arising from better than expected economic indicators in the initial aftermath of the lockdown phase of the pandemic. However, the Review indicates that the economy’s upturn has been uneven and corporate balance sheets remain fragile. The associated concern of stretched valuations being disconnected from underlying economic prospects, most notably in some segments of the equity and corporate credit markets, has since been reflected in the recent stock market sell-off.  Continue reading…

The Commission has recently adopted a proposal for a Council Recommendation to ensure that any measures taken by Member States that restrict free movement due to the coronavirus pandemic are coordinated and clearly communicated at the EU level. The Commission’s proposal sets out four key areas where Member States should work closer together:

Common criteria and thresholds for Member States when deciding whether to introduce travel restrictions; Mapping of common criteria using an agreed colour code; A common framework for measures applied to travellers from high-risk areas; Clear and timely information to the public about any restrictions.

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Ms. Christine Lagarde, President of the European Central Bank and Mr. Luis de Guindos, Vice-President of the European Central Bank recently gave a speech at an ECB press conference at Frankfurt am Main on 10 September. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Executive Vice-President, Mr Dombrovskis. The incoming data since our last monetary policy meeting in July suggest a strong rebound in activity broadly in line with previous expectations, although the level of activity remains well below the levels prevailing before the coronavirus (COVID-19) pandemic. Continue reading…

by Michel Klompmaker

Last month, the UWV1 published the full list of all companies that have made use of the Temporary Emergency Measure Bridging for Employment in the Netherlands, better known as the NOW scheme. It has become something more than a list, a complete register with more than 2,000 pages! Really for the enthusiasts, because it states exactly which companies have used it, their location and what the advance payment has been. Did you find the hourly rate charged to your company by your law firm and / or notary office to be disproportionately high? Then take a look at the register to see whether they had the guts to have made use of the NOW scheme (perhaps, in your opinion, previously misused). Continue reading…

The European Commission has concluded its exploratory talks with Moderna to purchase a potential vaccine against COVID-19. Moderna is the fifth company with which the Commission has concluded talks, following Sanofi-GSK on 31 July, Johnson & Johnson on 13 August, CureVac on 18 August, in addition to the signature of an Advance Purchase Agreement with AstraZeneca on 14 August. The envisaged contract with Moderna would provide for the possibility for all EU Member States to purchase the vaccine, as well as to donate to lower and middle income countries or re-direct to European countries. Continue reading…

Ravi Menon, Managing Director of the Monetary Authority of Singapore, recently gave a keynote speech via video conference from Singapore. COVID-19 has triggered the sharpest contraction in the global economy since the Great Depression of the 1930s. We can expect a gradual recovery from the third quarter onwards as countries re-open their economies. But there is considerable uncertainty about the strength and durability of this recovery. The trajectory of the economy will be largely shaped by the trajectory of the pandemic – which is itself a significant source of uncertainty. The risk of secondary waves of infection is not trivial. Those countries that have put in place strong safe management measures and a robust regime of testing, contact tracing, and swift isolation of infected persons, are more likely to minimise a second outbreak of infections and sustain their economic recovery.  Continue reading…

The European Central Bank (ECB) recently extended its recommendation to banks on dividend distributions and share buy-backs until 1 January 2021 and asked banks to be extremely moderate with regard to variable remuneration. It also clarified that it will give enough time for banks to replenish their capital and liquidity buffers in order not to act pro-cyclically. This updated recommendation on dividend distributions remains temporary and exceptional and is aimed at preserving banks’ capacity to absorb losses and support the economy in this environment of exceptional uncertainty. This uncertainty makes it difficult for banks to accurately forecast their capital positions. As demonstrated by the vulnerability analysis the level of capital in the system could decline significantly if a severe scenario were to materialise. Continue reading…

by Michel Klompmaker

Let’s start with the facts. Last week was the worst week to date, with 1.794,124 registered infections. Many politicians seem to be turning a blind eye to this reality and we should fear the fact that global figures, especially in Asia and Africa, are not correct. After all, not all cases of infections were registered in a reasonably civilised country such as the Netherlands. Meanwhile, EU Commissioner Gentiloni says “It is time to pump new confidence and new money into our economies in this critical situation.” There are now more than 17 million registered coronavirus patients worldwide and the EU has adjusted its economic expectations for the EU countries downwards. Continue reading…

by Michel Klompmaker

The WHO has reported a record number of new infections worldwide in recent days. The health organisation reported last Saturday that 224,260 new infections worldwide were registered in one day. And then we are only talking about the cases known to WHO. It can be guessed that the situation is even more serious, because even in a civilised country like the Netherlands, many infections were simply not reported. But what does this mean for the global economy? Let’s take a closer look at two major players from across the ocean, then it will soon be clear that the worst is yet to come. Most reports from the past few days come from the United States and Brazil. Together these countries account for almost half of all new infections worldwide, but many people in India have also tested positive for the virus. A few figures: The number of new worldwide registered new infections in the week of June 29 – July 5 was 1,230,000. Last June, the WHO recorded a record number of new infections of 5,303,000 compared to more than 2,300,000 last April. Continue reading…