What’s Going On Here?After four days of bluffs, tells, and intense eye contact, European Union leaders agreed on Tuesday to cash in an $860 billion bailout for the region (tweet this). What Does This Mean?The so-called recovery fund will be split roughly 50/50 between grants and low interest rate loans. It’ll be financed by eurozone-wide loans that are being issued for the very first time, and will mostly go to the industries – like tourism – and countries – like Italy – that’ve been hit hardest by the coronavirus pandemic. The environment is benefiting too: almost a third of the money has been earmarked for initiatives to fight climate change and reduce greenhouse gas emissions – including via Europe’s world-leading “green bonds”. Why Should I Care?For markets: Take slow for an answer.
Ahead of the announcement, key European stock market indexes rose, the value of the euro increased versus other major currencies, and investors bought up even the riskiest of eurozone countries’ bonds. In other words, investors appeared to have already accounted for – or “priced in” – a positive outcome, and the response to the news in stock, bond, and currency markets on Tuesday was accordingly calm. If Europe’s leaders had folded without a deal, investors might’ve scrambled to sell off assets instead. It just goes to show how future headlines are often reflected in markets ahead of time, putting retail investors at a disadvantage when they try to react in real time.
Zooming out: U-B-Yes!
Swiss investment bank UBS’s stock rose 3% after announcing better-than-expected second-quarter earnings on Tuesday, partly thanks to a similar boost in its trading business that US rivals reported seeing last week. In encouraging signs for investors in other European banks, UBS also said it’d aim to keep its shareholder payouts stable this year – primarily through dividends but with an eye on share buybacks, which the bank hopes to resume toward the end of the year. | 