Vaccine rollout – Europe accelerates as supply increases.
Europe is catching up fast on vaccination speed since the start of Q2, with average daily rollout reaching 0.76% in Germany and ~0.65% in Italy and Spain. This is largely thanks to a supply boost – total vaccine deliveries to EU/EEA countries grew to around 67 million doses in April, an over 40% increase from the amount delivered in March. Based on the European Commission’s targets, deliveries are expected to pick up further in May and June, which should support a continued acceleration in vaccination rollout. If this positive trend continues, it is possible for European countries to vaccinate half of their populations by June. With declining Covid cases and faster vaccination progress, more European countries are mulling reopening plans, including to vaccinated international tourists.
US Fiscal – More stimulus but taxes on the horizon.
Biden’s 100-day speech focused on fiscal policy. The new administration may add to the fiscal effort in summer, with an additional $4tn package, split evenly between infrastructure and low-income supporting stimulus. This time though, part of the effort will be funded. Biden outlined the potential for a large capital gain tax increase, from 20% to 40%. While the ultimate outcome is likely to be an intermediate tax rate, the policy would represent the first step towards tax hikes after 12 months of totally loose fiscal policy. US rates continued to push higher this week as the Fed failed to give a particularly dovish message. Overall, we continue to expect a gradual widening of global yields through the summer, with Euro rates set to underperform given the potential for a vaccine acceleration in Europe.
Next Generation EU Recovery Fund – A step in the right direction.
In late April, Europe’s four largest economies submitted their recovery and resilience plans. Of the four countries, only Italy’s plan envisages borrowing under the RRF and thus amounts to a much larger value, €205bn, with Spain’s plan at €69bn, France’s plan at €41bn and Germany’s plan at 28bn. Whilst the priorities of the plans differ by country, they all meet the minimum expenditure benchmarks of 37% for climate and 20% for digitalization; Germany plans to spend more than half of the EU money on digitalization, while the other three countries will deploy the majority of the funds towards the green transition. Once all spending plans are approved by the European Council, we expect the first 10% of total funds to be disbursed in Q3. We believe that the deployment of the NGEU fund is a step in the right direction, but it remains small when compared to the $1.9tn relief bill passed in the US last month and potential $4tn in infrastructure spending later this year. However, if successful, we think this could serve as an important stepping-stone towards further EU fiscal integration in the future.
To read more on our latest views, please see our Silver Bullet | A World Without Safe Havens or visit our Insights section.
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