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LGT Navigator: Difficult negotiations at the EU summit

July 20, 2020

In Brussels, the dispute over the corona aid package goes into the next round today. On Sunday, the first tentative rapprochements between the EU states took place. Meanwhile, the number of new corona infections in the United States has risen again in the past few days.


For three days now, the 27 EU leaders have been negotiating a financial package worth billions. On Sunday, the negotiations were broken off and extended again: on Monday at 2pm, the talks will enter the next round. On the agenda are the financing of the EU budget framework from 2021 to 2027, as well as the recovery fund to support member states that are particularly hard hit by the consequences of the corona crisis. Particularly controversial are the planned subsidies of EUR 500bn, which should be given to the crisis states without having to be paid back. The so-called “Frugal Four” - the Netherlands, Denmark, Sweden and Austria – have already announced their opposition to this proposal in advance. They want to link the allocation of funds to clear conditions and reform efforts. Even a compromise proposal by Council President Charles Michel has so far not led to the hoped-for agreement. Although the states gradually moved closer together on Sunday, no breakthrough was achieved. 

Chinese stock markets off to a friendly start

In China, stock markets started the week with gains after the central bank left monetary policy unchanged. The Shanghai Composite gained +2.6%. The Tokyo Stock Exchange, on the other hand, recorded slight losses: Japanese exports fell by more than -26% year-on-year in June. Analysts had expected a smaller decline.

Pandemic spreads

The pandemic is spreading steadily. More than 14 million people worldwide have now become infected with the virus and the number of deaths has climbed to over 600 000. In the US, the number of infections continues to rise rapidly: last week an average of more than 66 000 people were infected with the virus every day, +15% more than in the previous week, according to data from Johns Hopkins University. Hotspots are still the densely populated states of California, Florida and Texas, but the spread of the virus is also accelerating in most other states.

Inflation in the euro zone remains low

Inflation in the euro zone rose slightly in June. Prices rose by +0.3% year-on-year, after +0.1% in the previous month. In particular, food, tobacco and alcohol (+3.2%) as well as services (+1.2%) became more expensive. In contrast, energy prices fell significantly (-9.3%), thus dampening inflation in the 19 euro-area countries. Core inflation, which excludes energy and food prices, fell slightly from +1.2% in May to +1.1% in June. The European Central Bank (ECB) is thus still far from achieving its inflation target of just under 2% for overall inflation: For the current year, it expects a price increase of 0.3%.

Bleak outlook for the European economy

The economic downturn in the euro zone is likely to be more severe than expected. This is the result of an ECB survey that the central bank conducts quarterly among economists inside and outside the financial sector. According to the survey, the experts forecast an economic slump in the euro zone of -8.3% on average for the current year. Three months ago, they were expecting a minus of -5.5%. In the next two years, gross domestic product is expected to grow again (2021: +5.7%, 2022: +2.4%). However, according to the economists, unemployment is not likely to fall until 2022.

Economic Indicators July 20

MEZ Country Indicator Last
01:50 JP Trade balance (June) JPY -601bn
08:00 GER Producer prices (June) -0.4%
10:00 EZ Current account balance (May) EUR 14.4bn

Earnings Calendar July 20

Country Corporate Period
CH Julius Bär H1
US Halliburton Q2




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