The epidemic has become a clear threat to the European economy. Lagarde hinted at more stimulus on the way! There may not be enough room for the euro to hit an one-month high and continue to rise.

SMM: on the evening of October 20, local time, ECB President Christine Lagarde said in an interview that the rise in COVID-19 cases is an "obvious risk" in the euro zone economic forecast. It is a sign that the ECB is preparing for more monetary stimulus.

Lagarde said the epidemic posed a risk to the euro zone economy and urged the European Union to consider tools for permanent stimulus measures.

Lagarde said in an interview that most eurozone scientists had expected the epidemic to spread again in November or December, threatening the economic recovery because of the cold temperatures at that time. But in fact, the epidemic rebounded earlier, which is surprising and not a good sign from this point of view.

Lagarde also said EU leaders should consider a regional 7500yi euro recovery fund as a permanent tool. "this recovery plan tool is designed to deal with special circumstances and we should discuss the possibility of keeping it in the European policy toolbox so that it can be used again," she said in a speech posted on the ECB's website. "

Lagarde said: "I hope there will be discussion about a common euro zone budget tool, and our current experience will enrich it." The options in our policy toolbox have not been exhausted, and if more needs to be done, then we will take action. Since the rebound in the summer, the economic recovery has been uneven, uncertain and incomplete, and there is now a risk of losing momentum, and we will closely monitor the indicators throughout the autumn. "

While the ECB has long called for a common eurozone budget, Ms Lagarde's comments appear to go beyond her previous belief that the recovery fund is a "one-off". The outlook for the eurozone economy is deteriorating rapidly less than two weeks before the ECB's next policy meeting, after member states imposed curfews and other epidemic restrictions to stop the epidemic from spreading.

In fact, hours before Ms Lagarde's interview was broadcast, Lane (Philip Lane), chief economist of the ECB, warned: "although the epidemic may be contained, if control fails in the future, we must prepare for a worse situation."

The ECB's governing council will meet next week to set monetary policy, but most analysts and investors expect the ECB to wait until December to raise the size of its 13500 yi euro ($1.6 trillion) massive bond-buying programme. At that time, officials will update their forecasts for economic growth and inflation in the eurozone, which makes sense for more action. Similarly, the Bank of England is expected to increase its bond-buying programme and issue revised economic forecasts at its meeting in early November. Since the last meeting in September, ECB officials have made several public appearances to reiterate their official position on increasing stimulus measures if necessary, but they are divided on whether it is necessary to do so.

Earlier on October 20, Dekos (Pablo Hernandez de Cos), governor of the Bank of Spain, said: "We do not have much room for complacency and cannot rule out or need to readjust previous measures or introduce new measures if necessary."

But Austrian central bank governor Holtzmann (Robert Holzmann) said on October 19th that he did not see the need for more monetary support.

Lagarde talked about these differences in the interview, saying that they reflect different cultures among European countries, their assessment of economic prospects and their views on the role of monetary and fiscal policy, but these differences have been resolved. "what is unusual is that people express different views, sometimes against each other, the data are compared, and eventually we reach a common position," she said. "

Lagarde also reiterated her call for governments to join hands with central banks to save the economy. "We are undergoing a large-scale economic transformation, and I think it is very important that fiscal policy, monetary policy and, most importantly, structural development share a common goal, but it is not easy to achieve it," she said. "

As the epidemic crisis continues, the euro zone economy weakens again.

Data show that global economic activity softened again in October, especially in European countries, after gaining momentum in the second half of September.

It is reported that the data integrates high-frequency data such as transportation, energy consumption and public transport use. With the sharp rise in the number of COVID-19 cases, there are fears that the epidemic will break out again, and epidemic activities in Germany, France, Spain and Italy have leveled off. By contrast, after a long period of economic stagnation, the United States is now increasingly catching up with European countries. Economic activity in Canada and the UK is only 2/3 of its pre-outbreak level, making it the worst-performing developed economy.

In fact, as early as Oct. 19, the ECB executive director Mercy warned that the eurozone economic recovery was losing some momentum as the number of COVID-19 cases surged. A weak economy, low energy prices and the recent appreciation of the euro are expected to continue to put pressure on the inflation outlook.

After ECB President Christine Lagarde publicly expressed concern about the impact of the epidemic on the economy, pay attention to whether the ECB's November interest rate decision next week once again released dove language, a new round of COVID-19 statistics and blocking news may prompt the central bank to take action.

According to the draft budget published by EU member states on the website of the European Commission, the total fiscal deficit of all 19 member states this year is 9760yi euros, accounting for about 8.9% of EU GDP. It is worth noting that the above figures mean that the EU's budget deficit this year will be about 10 times higher than last year's level and the European Commission's previous forecast for this year's level.

Governments expect the deficit to remain high, roughly slightly less than the 7000yi euro, or about 6 per cent of EU GDP, even if the economy rebounds in 2021. The last time the euro zone's budget deficit peaked was in early 2010, when the level was about 6.6% of GDP, with high public debt and foreshadowing the subsequent euro zone sovereign debt crisis, according to ECB data.

On Oct. 21, the euro rose against the dollar for the fourth day in a row, rising to a near one-month high of 1.1850. Optimistic expectations of a new stimulus package ahead of the US election have risen, successfully boosting the exchange rate. However, the novel coronavirus epidemic in many European countries has worsened and the economy has softened again, and the escalation of restrictions may increase the loose pressure on the European Bank. Lagarde has expressed concern about the impact of the epidemic on the economy, hinting that monetary stimulus measures will be considered, which will be negative for the euro in the medium to long term, and further upside space may be limited. Looking ahead, investors need to pay attention to whether the ECB's November interest rate decision releases dove language again.