The virus situation remains fluid, while heightened US-China tensions have taken a toll on sentiment early in the week. Investors, nevertheless, were throwing caution to the wind, until an unexpected ruling from the German Constitutional Court (GCC).
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.
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 with the decision.
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, and is probably more stunned than anything else.
But currencies will lead the way, and risk will follow. This is bad news any way you slice the pie as both the euro and pound will take deep dives. The horrific slide in UK car sales does not help the situation as it fell 97.3% YoY, a total of 4,321 vs. 151,064 the year before.