Eurozone: Guided by the politics - Westpac

Tim Riddell, analyst at Westpac, points out that the protracted nomination of replacements for key EU roles (vacant in late-Oct) has finally concluded.

Key Quotes

“Risk over ratifying German von der Leyen as European Commission president persists, but should be minimal, while other roles are almost assured. The surprise for markets has been Christine Lagarde’s nomination to replace Draghi as ECB president. Her broad political and legal background and negotiating skills are not minor issues.”

“At Sintra, Draghi effectively reopened ECB’s “whatever it takes” stance and markets are now geared for more easing that may include a looser form of their APP. Additionally, the newly elected and less staunchly centre-right EU Parliament may also be less rigid on EU fiscal stances.”

“A former politician, with acute understanding of fiscal negotiations, as ECB president might finally be able to unlock structural and fiscal support to balance monetary stimulus. It may be too early to call for such a shift. However, might the EC dropping disciplinary action against Italy over their current budget suggest a more lenient EC?”

“EUR/USD has remained within a 1.11-1.16 range since Sep 2018, but could a shift in perceptions towards EC and EU politics lift EUR into the upper half of its range?”