June 5, 2020
The European Central Bank’s (ECB) additional monetary stimulus appears synchronized with the European Union’s planned unified-fiscal policy expansion.

What Happened

At its scheduled monetary policy meeting, the ECB revised economic growth and inflation projections downward for the Eurozone. The Eurozone’s real GDP growth was moved lower to -8.7% in 2020 and is expected to partly recover in 2021 at 5.2% and in 2022 at 3.3%. Unemployment is expected to reach above 10% by 2021. Due to lower aggregate demand and energy prices, inflation expectations were downgraded close to 0%, which is significantly lower than the ECB’s preferred inflation level of 2%.

In response to continued deterioration of economic and financial market conditions, the ECB announced plans to increase the previously announced Pandemic Emergency Purchase Program (PEPP) by €600b ($680b) to €1.35t ($1.5t).

The PEPP program is designed to purchase sovereign bonds, including bonds from countries that were excluded in the past like Greece and corporate debt to provide relief to European corporate debt markets.

The purchase program’s timeline was extended to at least the end of June 2021, and the bank commits to re-invest coupons and principal payments until the end of 2022.

Our Take

The upgrade of the PEPP is appropriate and timely. Crucially, the increase in bond purchases is €100b higher than the market’s expectations. European economies still face a significant struggle ahead. The ECB’s economic projections may have to be adjusted downward again if Europe’s summer tourism disappoints already muted expectations.

Additional ECB purchases could tighten sovereign bond yields even further, which is a critical barometer for peripheral Eurozone countries like Italy, Spain, and Greece.

The ECB’s decision coincided with Germany’s additional €130b stimulus announcement and the European Union’s joint European Recovery Fund plan. The European Recovery Fund is an important milestone for Europe. For the first time, the European Commission will issue bonds to raise assets for a Recovery Fund, sharing risk collectively with all member countries and distributing a significant portion of the Fund as grants to countries in need. Negotiations continue and are expected to finalize before the end of the summer. If the Recovery Fund gets established and ECB provides significant liquidity to raise required assets, Europe could recover faster than anticipated.

Bottom Line

With global macroeconomic data continuing to disappoint, countries, especially in Europe, were required to introduce additional fiscal stimulus packages. On the monetary side, central banks committed to providing liquidity where it is needed. There are still many unknowns related to Covid-19’s spread and the containment efforts. Still, the good news is that fiscal and monetary backstops are catching up to reality and in many parts of the world could offer significant stimulus when economies are fully functioning again.

European assets have been on a recovery path along with all other global assets and would be further assisted by broad-based support for the European Recovery Fund. Given the extreme underperformance of the region in recent years, European assets could offer more upside versus other developed market assets for short-term oriented tactical investors. However, aging populations, lower expected long-term productivity and lack of a true fiscal union are strong impediments to European economic growth and related assets in the long run.


This material was provided by SunTrust Private Wealth Management for use by BB&T Wealth.

Advisory managed account programs entail risks, including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure which includes program details, including risks, fees and expenses.

International investments are subject to special risks, such as political unrest, economic instability, and currency fluctuations. Emerging Markets: Investing in the securities of such companies and countries involves certain considerations not usually associated with investing in developed countries, including unstable political and economic conditions, adverse geopolitical developments, price volatility, lack of liquidity, and fluctuations in currency exchange rate.

BB&T Wealth is a marketing name used by Truist Financial Corporation and the following affiliates: Banking products and services, including loans and deposit accounts, are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank and SunTrust Delaware Trust Company. Securities, brokerage accounts and /or insurance (including annuities) are offered by SunTrust Investment Services, Inc., BB&T Securities, LLC, and P.J. Robb Variable Corp., which are SEC registered broker-dealers, members FINRA, SIPC, and a licensed insurance agency where applicable. Investment advisory services are offered by SunTrust Advisory Services, Inc., GFO Advisory Services, LLC, BB&T Securities, LLC, Sterling Capital Management, LLC, Precept Advisory Group, LLC, and BB&T Institutional Investment Advisors, Inc., each SEC registered investment advisers.  BB&T Sterling Advisors, BB&T Investments and BB&T Scott & Stringfellow are divisions of BB&T Securities, LLC. Mutual fund products are advised by Sterling Capital Management, LLC.

While this information is believed to be accurate, SunTrust Banks, Inc., now Truist Financial Corporation, including its affiliates, does not guarantee the accuracy, completeness or timeliness of, or otherwise endorse these analyses or market data.

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Truist Financial Corporation makes no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis of any security, company, or industry involved.  This material is not to be construed as an offer to sell or a solicitation of an offer to buy any security.

Opinions and information expressed herein are subject to change without notice. STIS and/or its affiliates, including your Advisor, may have issued materials that are inconsistent with or may reach different conclusions than those represented in this commentary, and all opinions and information are believed to be reflective of judgments and opinions as of the date that material was originally published.  STIS is under no obligation to ensure that other materials are brought to the attention of any recipient of this commentary. 

Truist personnel are not permitted to give legal or tax advice.

Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.

STIS/STAS shall accept no liability for any loss arising from the use of this material, nor shall STIS/STAS treat any recipient of this material as a customer or client simply by virtue of the receipt of this material.

The information herein is for persons residing in the United States of America only and is not intended for any person in any other jurisdiction.

Investors may be prohibited in certain states from purchasing some over-the-counter securities mentioned herein.

The information contained in this material is produced and copyrighted by Truist Financial Corporation and any unauthorized use, duplication, redistribution or disclosure is prohibited by law.   

STIS/STAS’s officers, employees, agents and/or affiliates may have positions in securities, options, rights, or warrants mentioned or discussed in this material.

Asset classes are represented by the following indexes. An investment cannot be made directly into an index.

©2020 Truist Financial Corporation. BB&T, SunTrust®, the SunTrust logo, and Truist are service marks of Truist Financial Corporation. All rights reserved.