New York Open: The German Constitutional Court's head-scratcher

Market Analysis /
05 May 2020

Despite  how fluid the virus situation remains while heightened US-China tensions have taken  its toll on sentiment  early in the week, investors were throwing caution to the wind  that was until an unexpected ruling from the  German Constitutional Court's
 
The market is still scratching its head over the high court's decision on the ECB's PSPP. The ruling is far worse than expected, and the market should react negatively - at least until the confusion about the decision is clarified. Challenge to analyze this in a few minutes let me give it a go
 
 1) the ECB over the next three months will likely insist that the framework of the PSPP is addressing all the German Constitutional Court's concerns, while possibly adding a few minor tweaks to comply
 
 2) it's not clear what happens after the three months? If the GCC is not satisfied. Is it back to the drawing board?
 
 3) much more importantly, the ECB's PEPP now looks to be on shaky grounds. This is only the first read, and who knows what flaws the court  will discover in the 90-day window
 
Initially, I'm not sure the market knew what to make of the ruling, probably more stunned than anything else to be honest
 
 But currencies will lead the way, and risk will follow in kind. This is bad news any way you slice the pie as both the Euro and Pound take deep dives the later getting accented by a horrific slide in UK car sales which fell 97.3 % year on year that's a total of 4,321 vs. 151,064 the year before.

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