Global Markets Overview: Western Europe
By Luke Long, Analyst at the York IFS Global Market Telegraph
Equities volatile as Europe braces for an economic recovery. France, Germany and the Netherlands' struggle with vaccine distribution and the continent is accused of hoarding an unethical proportion of vaccines. Optimism spreads from the appointment of Mario Draghi, former president of ECB, as the Italian Prime Minister.
Over the last two weeks, European stocks fell, along with global markets, and have been particularly volatile. In local currency terms, the STOXX Europe 600 Index ended the fortnight (16/02/21-02/03/21) 1.4% lower. European markets hit a 1-month low last Friday with the STOXX Europe 600 Index declining 1.54% overnight . This volatility across European stocks comes on the back of growing concerns that European Central Bank would act sooner than anticipated, in order to suppress inflationary pressures that will inevitably accompany the European economic recovery .
The EU vaccine rollout is well underway, with vaccine supplies set to triple to 300 million doses being distributed across the continent in the second quarter . The front-runners are Nordic countries such as Sweden and Denmark, which are scheduled to have every adult inoculated by the end of June. The EU target for member countries is to have 70% of adults vaccinated by September. However, some countries, such as Germany, France, Italy and the Netherlands, are struggling to accelerate their vaccination programmes in line with other European countries and EU targets . This results in stockpiling of vaccines waiting to be used. This inefficiency is partly down to citizens snubbing the vaccine after initial bad press, resulting in the French health ministry calling for a ‘collective rehabilitation campaign’  to reinstate credibility in the vaccine.
There has also been a shift in the COVID-19 vaccination policy across Europe. Pressures to clear the EU vaccine stockpile have resulted in the lifting of the over-65 age restrictions on the Oxford/AstraZeneca vaccine in France and Germany , that have both struggled with distribution. Germany and France have administered just 25% and 21% respectively of their allocated vaccine doses (by 28/02/21), so lifting this restriction should enhance their rollout programmes .
French President, Emmanuel Macron, has addressed the moral implications of richer countries holding hundreds of millions of vaccines, whilst poorer developing countries are left with limited supply of vaccines at ‘astronomical prices’ (up to 2/3 times the amount paid by Europe). He suggested a solution of European countries and the US allocating up to 5% of their current vaccine supply to poorer African countries. In addition to this, Italy recently blocked an export of 250,000 doses of the Oxford/AstraZeneca vaccine to Australia, which inflamed these tensions . If left unaddressed, Macron warned that the ‘unprecedented acceleration in global inequality’ could lead to political instability and global conflict/war of influence over vaccines .
On the 13th February, Mario Draghi, former ECB President, was sworn in as Italy’s 30th prime minister since the birth of the Republic in 1946 . After attracting political support from almost every Italian political party, he will lead a mixed government with the task of limiting the economic damage from the pandemic and managing the COVID-19 vaccination programme. Overseeing the economic recovery of the most severe crisis since WW2 with a budget of €200 billion of EU recovery money , he will be dealing with Italy’s colossal public debt. The first bond sale in the Draghi era was the issuing of 10-year bonds by the Italian government at one of the lowest borrowing costs on record in the hope that the new prime minister will effectively utilise EU recovery funds. The deal attracted €110 billion in demand, stemming from better economic prospects under Draghi with investors rushing to lock in returns to increase the appeal of Italian debt .
Fintech is expected to be a key part of Draghi’s spending to formulate the ambitious reform plan over the next few years, with talks of investing large sums in digital infrastructure and technological upgrades . "Draghi’s focus on innovation… is undoubtedly good news for the fintech sector," stated Corrado Passera, a minister in Italy’s last technocratic government. On the back of Draghi’s election, Italy’s main stock index, the FTSE MIB rose 7% from a low on the 29th January . Investors have turned bullish on Italian markets and experts believe there is still room to grow.
This article was first published in the University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 16 in early March 2021.
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