German Chancellor Merkel's coalition reaches deal on german stimulus package – Bloomberg

Bloomberg reported earlier in the day that the German coalition parties have agreed on on on a big stimulus package that will strengthen the overall economy and allow the labour market to recover more quickly from the coronavirus pandemic.

key notes

Chancellor Angela Merkel secured a stimulus package to help Europe’s biggest economy recover from the coronavirus crisis.

The euro briefly extended its advance for the day following news of the stimulus agreement, reaching an almost 12-week high of $1.1257, before paring its gain for the day to around 0.6%.

After an initial shot of stimulus in March, Merkel’s administration vowed to spend whatever it takes to get the country growing again. Including programs to guarantee company liquidity, Germany has made more than 1.2 trillion euros available -- the most in the European Union by far. Still, the efforts couldn’t halt unemployment rising in May to the highest level since late 2015.

After a brief period of unity at the height of the pandemic, party differences waylayed efforts to revive Germany’s faltering economy. The Social Democrats were pushing for higher spending and measures focusing on workers and families, while the CDU was keen to limit the amount of new debt and get businesses investing again.

The latest stimulus package could represent the last major spending initiative before elections late next year, meaning stakes for the ruling parties were high.

The first step is to pull Germany out of deep recession. Weeks of stringent restrictions to contain the virus hurt demand for everything from Volkswagen cars to Adidas shoes and prompted the landmark 9 billion-euro bailout of Deutsche Lufthansa AG. The economy is expected to contract by more than 6% this year, which would be a more severe contraction than during the financial crisis.

While social-distancing rules remain in place, Germany’s lockdown restrictions have largely been unwound with contagion rates held in check.

On Wednesday, Germany took a further step to reactivate European travel. Merkel’s cabinet approved plans that pave the way for a broad travel warning to be replaced from June 15 with recommendations for individual nations in the 27-member EU, countries in the passport-free Schengen area and the U.K.

Market implications

The coronavirus pandemic further hit Germany's labour market in May as companies continued to slash thousands of jobs and put millions of employees on reduced working hours, data showed on Wednesday.

However, as markets head higher, the bullish sentiment is here to stay and we are seeing the tides turn in FX.

More on that here...USD/JPY rallies to test the vicinity of 109 level