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Digital euro - Weak euro

By Marius-Cristian Frunza
Weekly Briefs

The European Central Bank announced the launch of the digital euro. The “new” euro would aim to compete with the myriad of crypto-currencies already floating in the market. The announcement comes to reinsure bankers about the future of the Eurozone. Yet, it also brings a big deal of confusion. What is the real agenda behind this digital fiat currency?

A decade ago, after the Eurozone crisis, the idea of a two-speed Europe started to emerge in Brussels. Under that scenario, the EU should have split between the Northern countries, which are more developed, and the peripheral countries with more significant economic issues. Going further, each of the two regions should have had a different currency: a strong Euro for the developed areas and a weak Euro for the more impoverished regions.

What if the digital Euro is just a glamorised labelling for the weak Euro? What if the digital euro is a creative way to deal with the massive level of debt of the EU members ? We remember that Argentina in the early 2000s opted for the pesification of all accounts and all debt issued in dollars were converted into pesos. The digitalisation of the Euro could be nothing else than a "pesification" of all bank accounts in Europe. Companies and individuals having accounts in Euro (Strong Euro) could realise overnight that they own deposits in Digital Euro (Weak Euro).

Such a manoeuvre could solve all issues in one move. Who will pay the bill in the end? Obviously, people residing in the Eurozone will take a hit. The introduction of the Digital Euro is similar to a perpetual tax, so much needed to solve Brussels’s fiscal troubles.

Meanwhile, European stocks are on a positive trend and interestingly, the leading European indices are far from their historical maxima like their American peers. While most analysts would interpret this fact as a lack of confidence of markets in Europe’s future, a more thorough study shows that Frankfurt printed fewer monies than the Fed. Consequently, the dollar is depreciating compared to the Euro, and there are no reasons to believe that the trend will invert soon.


A two-speed Europe will not be a strong Europe. The idea of making decisions and policies in a narrow circle, disregarding smaller EU members, will make it hard to engage them to commit to a common policy, which will weaken the union. Georgi Sedefchov Parvanov, ex-President of Bulgaria

Market overview

The US has a new President in the office, there is no civil war and life continues. Markets saluted the change in the White House, and on the 21st of January, the leading indices were bullish. Optimism comes from the hope of a big stimulus pack. This new infusion of liquidity in American households could be only a positive signal for the leading stocks. It is not good news for the US dollar as the leading reserve currency’s devaluation has already started.

The critical question concerns inflation.  What is the likelihood of observing inflation in consumers prices? The probability is high if the US dollar continues to lose ground to the Chinese Yuan. Inflation could be a game-changer not only for the Forex market but also for equities.

Focus:

Apple

Apple launched successfully the iPhone 12, which seems to be a commercial success. Sales of the new gadget drive Apple’s share higher, and the market has a positive consensus in the medium and long run. The extended work-from-home triggered an increase in Apple’s sales, including Mac and iPad and various accessories required for an excellent online experience.

Apple’s share lost ground in September amid disappointing quarterly results but the end of the year brought a strong momentum.

Focus:

Google

Alphabet’s stock increased in the last week by over 5%, reaching its all-time high. The behaviour is partially disconnected from reality. Google is in murky waters and has a lot of legal issues in the US as well as in European courts. Several states sued the tech giant for monopoly concerts. The antitrust lawsuits may cost Alphabet, but the market sees the Californian colossus as robust.

Cryptocurrencies:

Bitcoin in disarray

Jannet Yellen and Christine Lagarde, the most influential people in the world of banking, openly criticised Bitcoin. Both underlined the need to curtail the leading cryptocurrency because it serves only for wrongdoings.

Amid bad press, rumours about the possibility of Bitcoin double-spending spread fast in the market. Consequently, the price dropped to near 30,000 USD. Investors had a flashback remembering the MtGox episode when 10% of all available Bitcoin were stolen. Back then, detractors said that there was a double-spending issue in the blockchain which facilitated the theft. Things calmed down as experts from Elliptic, a leading cryptocurrency forensic firm reinsured the market.

Commodities:

Natural Gas

The price of UK natural gas traded at a two-year high in early January. Since then, the front-month contract moved into negative territory. Cold weather and lower than expected supply of LNG drove this rally. Moreover, the extended lockdown in the UK increased the demand for gas for household heating. If the lockdown persists, the prices will remain on a positive trend.

Market outlook

The Gold ounce is currently undervalued and there are serious reasons to see a positive trend in the next quarter. If inflation rises, oil price can show a strong positive trend along with most commodities.

Bitcoin has reasons to recover, despite a catastrophic week. Detractors made noise in the mainstream media again, and the next week will be a real test for the leading cryptocurrency.

The equity market should be able to keep its momentum.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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