How far can risk premiums go down in Europe?


21 Dec

How far can risk premiums go down in Europe?

EU finally to release 750 bn in recovery spending. GDP likely to contract in Q4. ECB to increase its support programmes. Fall in risk premiums reaches its limits. Risks return to the markets.

Key points

  • End of 1st element of suspense: EU will finally be
    able to distribute 750 billion in Covid relief
  • End of 2nd element of suspense: Brexit will be
    effective with or without an agreement as of 31
    December 2020
  • GDP rebound will likely be followed by a
    contraction in Q4
  • Expected GDP growth of +4.5% in 2021
  • ECB remains expansionary and reassuring
  • How far can risk premiums go down in the
    Eurozone?
  • Strength of the euro puts it back in the 1.20-1.30
    fluctuation band
  • Return of short-term risks for European equities