“Weak German Retail Sales…”

German Retail Sales fell unexpectedly in the month of July according to data on Wednesday dropping by 0.9 percent on the month in real terms after a revised drop of 1.9 percent in June, calendar adjusted data from the Federal Statistics Office showed.  On the year, retail sales rose by 4.2 percent in real terms after an upwardly revised increase of 6.7 percent the previous month, the data showed.  Compared with February the month before the outbreak of the pandemic, retail sales were 0.9 percent higher in real terms in July, said the office, suggesting that this sector of the economy managed to recover relatively quickly in a V-shaped development.

Eurozone Consumer Prices

Eurozone consumer prices fell in August against market expectations of a small increase, amid a sharp drop in energy prices, said the European Union’s statistics office Eurostat.  Eurostat said consumer prices in the 19 countries sharing the euro fell 0.4 percent month-on-month for a 0.2 year-on-year decline.  The last time prices dropped year-on-year in the eurozone was in May 2016 when they dropped by 0.1 percent.  Energy prices dropped 7.8 percent year-on year in August after an 8.4 percent drop in July.  Prices of non-industrial goods also declined by 0.1 percent after 1.6 percent increase in July.  Excluding the volatile energy and also often the changing unprocessed food prices, core inflation as called by the European Central Bank prices fell 0.4 percent month on month whilst annually increased by 0.6 percent.   The ECB wants to keep inflation below, but close to 2 percent over the medium term.  On a separate note euro unemployment was slightly lower than expected at 7.9 percent in July up from 7.7 percent in June.

Eurozone Economic Recovery

The eurozone rebound from its deepest downturn on record stalled in August as growth in the bloc’s dominant service industry almost halted, a survey showed on Thursday.  In the last quarter the bloc’s economy contracted 12.1 percent as the lockdowns to control the pandemic led businesses to close down and citizens staying home, showed official data.  IHS Markit’s final Composite Purchasing Managers’ Index which is seen as a good gauge of economic health, suggests the economy was still struggling. It sank to 51.9 last month from July’s 54.9 close to the 50-mark separating growth from contraction.  The services PMI dropped from 54.7 to 50.5.   Demand stuttered across the currency union, despite firms cut prices, and headcount was reduced for a sixth month.  The ECB target is for inflation to be just below 2 percent.  The bank has engaged in buying record amount of Debt to keep borrowing costs down and support the economy. 

US Private Payrolls

US private payrolls increased less than expected in August, suggesting that the labour market recovery was slowing as the COVID-19 pandemic persists and the fiscal stimulus are fading.  The ADP National Employment Report on Wednesday showed that private payrolls climbed by 428,000 jobs last month whilst data for July was revised upwards to show hiring gaining 212,000 jobs instead of the initially reported 167,000. 

US Manufacturing Activity

US manufacturing activity accelerated to a more than 1 ½ year high in August due to a surge in new orders but employment continued to lag, supporting the view that the labour market recovery was losing momentum.  The reading from the Institute for Supply Management (ISM) said on Tuesday its index of national factory activity increased to a reading of 56 last month from 54.2 in July.  That was the highest level since January 2019 and marked three straight months of growth.  A reading above 50 indicates expansion in manufacturing, which accounts for 11 percent of the US economy.  The coronavirus pandemic shifts has shifted spending from equipment used in the services industries such as restaurants and bars to purchases of goods like home electronics.  Meanwhile the USM’s forward looking new orders sub-index increased to a reading of 67.6 in August, the strongest since December 2017, from 61.5 in July.  Although factory employment continued to improve last month, it remained in contraction territory.  The ISM’s manufacturing employment measure climbed to a reading of 46.4 from 44.3 in July.    

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits dropped more than expected last week, however remained extraordinarily high amid signs that the labour market recovery was losing steam as the COVID-19 pandemic continues and government support expire.   Initial claims for state unemployment benefits totalling a seasonally adjusted 881,000 for the week ended 29th August, compared to 1.011 million in the prior week, the Labour Department said on Thursday.  With last week’s claims report, the Labour Department changed the methodology it used to address seasonal fluctuations in the data, which economists complained had become less reliable because of the economic shock caused by the coronavirus crisis. 

China’s Factory Activity

China’s factory activity expanded at the fastest phase in nearly a decade in August, amid the first increase in new export orders this year as manufacturers increased production to meet rebounding demand, according to a private survey on Tuesday.  The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 53.1 last month from July’s 52.8, marking the sector’s fourth consecutive month of growth and the biggest rate of expansion since January 2011.  The 50-mark separates growth from contraction on a monthly basis. The upbeat findings contrasted with an official survey on Monday, that showed that China’s factory activity grew at a slightly slower pace in August as floods across southwestern China disrupted production, but there were positive signs in both PMIs.  The official PMI’s improving trend in new export orders was similar to the private survey, while the former also showed solid growth in the crucial services sector in a boost to the economy’s continued recovery from the coronavirus shock.  In Tuesday’s Caixin, Chinese factories reported the first increase in new export orders this year in August as overseas countries eased COVID-19 restrictions to kick start their economies. The pick-up in business also led to a further expansion in production, marking the sharpest gain in almost a decade. The labour market also saw signs of improvement, as some companies increased recruitment to meet production needs.  However, the gauge of employment continued to stay in negative territory for the eight-straight month.  Business optimism towards the year ahead among Chinese factories remained strong overall, although it dipped slightly in August. Firms are concerned about the severity of the global pandemic over the long term.

China’s Services Sector

An industry survey showed on Thursday that, the recovery of China’s service sector activity extended into a fourth straight month in August, with companies hiring more people for the first time since January.  The Caixin/Markit services Purchasing Managers’ Index (PMI) slipped to 54.0 from July’s 54.1, dropping for the second month after June’s decade high, but staying above the 50-mark that separates monthly growth from contraction.  The services sector, that accounts for about 60 percent of the economy and half of the urban jobs, had been slower to grow initially compared to large manufacturers.  The recovery has gathered pace in recent months as the COVID-19 restrictions on public gatherings were lifted.    

Currency Roundup

Emerging Asian currencies rose on Monday amid the fast growth in China’s services sector that supported recovery prospects in the region and added to positive sentiment around the US Federal Reserve’s accommodative position taken last week.  The euro reached the $1.20 mark on Monday after it scaled another 28-month high and the dollar slipped to a multi-year low as investors were expecting that the FED policy framework meant US rates would stay low for longer.  Furthermore, the announcement by the FED last week that it would tolerate periods of higher inflation and focus more on the average inflation and higher employment has encouraged traders to sell the dollar.  The political uncertainty ahead of the November presidential election and worries over the recovery of the US economy has also weakened the greenback, leading the euro to be the biggest beneficiary. The strong manufacturing data also helped the U.S. dollar recover losses after it hit a 28-month low against a basket of currencies on Tuesday.  The dollar was at its lowest in more than two years against a basket of currencies .DXY, pressured by the U.S. Federal Reserve’s loosening of inflation policy last week, making dollar-priced commodities cheaper for global buyers. The dollar index stood at 92.381 off the Tuesday’s low of 91.737.  The euro changed hands at $1.1905 flat on the day after reaching above $1.20 for the first time since 2018 during Tuesday’s trading. Meanwhile the dollar was firm on the yen at 106.04 yen.  The Australian dollar lost as much as 0.5 percent to $0.7338 after GDP data showed that the Australian economy suffered a deeper than expected 7 percent contraction in the quarter, its worst economic downturn on record and confirming its first recession in about three decades.  Sterling reached new eight-month highs on Tuesday above $1.34 as the dollar weakness deepened in the wake of the Federal Reserve’s new policy framework that suggests that US interest rates will remain at record lows for the foreseeable future.  Gains were capped ahead of a mid-week speech by Bank of England Governor Andrew Bailey, before the central bank’s next monetary policy announcement on 17 September.  Against the Euro the pound gained 0.3 percent to 89.01 pence.  On Thursday the bounce of the dollar extended as investors cut their bets against the currency and sold the euro due to concerns that the European Central Bank was worried about its increase.  The bounce has lifted the greenback about 1.3 percent above the 28-month low it hit against a basket of currencies on Tuesday.  The dollar has for nearly a fortnight been fighting to hold the line after dropping 10 percent from the March peak.  The euro dropped about 0.4 percent to a one-week low of $1.1797 in Asia after the Financial Times reported that several members of the ECB’s governing council were concerned that the euro’s rise could impact European growth.  Meanwhile the yuan rose as high as 6.8250 per dollar in the onshore market amid a survey showing a sustained recovery in China’s services sector that grew for a fourth straight month.  Sterling fell on Thursday extending its losses due to the strength in the dollar and weak domestic factors, the long-term damage to Britain’s economy from the coronavirus and a lack of progress in Brexit negotiations. 

Market Wrap

On Monday stocks hovered near record highs and were set for five straight months of gains as investors bet on central banks keeping the stimulus open for years to come as the world tries to overcome the coronavirus crisis. European shares ended lower on Monday weighed down by weak financial stocks after disappointing German and Italian inflation data.  The MSCI broadest index of Asia-Pacific shares outside Japan hit its highest since March 2018 supported by upbeat readings on China’s service sector.  While London was closed for a public holiday, US stock futures pointed to a positive Wall street opening.  Meanwhile the risk of higher inflation in the future, assuming the FED can get it there has pushed up the longer-term Treasury yields and sharply steepened by the yield curve.  Yields on the 30-year bonds climbed almost 16 basis points last week and were last at 1.53 percent 139 basis points above the two-year yield.  The spread is approaching the June gap of 146 basis points, the largest since late 2017.  On Wall Street both the S&P 500 and the NASDAQ boasted record closing highs with the technology sector leading the charge.  Apple, the world’s biggest company by market capitalisation, climbed just under 4 percent to take its value to almost $2.3 trillion after a media report that the company has asked suppliers to make at least 75 million 5G iPhones for later this year.  On Tuesday the heavy tech NASDAQ hit a record high at the open on Tuesday as Apple shares advanced and positive manufacturing sector surveys in China and Europe set the tone for the upcoming US factory activity data.  The NASDAQ composite gained 0.64 percent to 11,850.96 at the opening, while the Dow Jones Industrial Average rose 0.03 percent to 28,439.61 and the S&P opened higher by 0.2 percent to 3507.44.  Asian shares inched up on Wednesday following buoyant manufacturing indicators from the US and elsewhere and a rally in US tech shares with investors expecting more policy support from Washington.  European shares closed higher on Wednesday amid signs of a recovery in global manufacturing activity that helped chemical and industrial stocks, while the tech sector marked its strongest close in more than 19 years tracking gains on Wall Street.   The pan European STOXX 600 index rose 1.7 percent after closing lower for the past four sessions.  The chemical sector ended at a record high as positive manufacturing data from the eurozone, the United States and China this week that pointed to a recovery in global factory activity.  Meanwhile, technology stocks have been more resilient than most through the pandemic.  European shares climbed on Thursday amid signs of a global economic recovery and hopes of more stimulus measures, as focus turned to local service-sector data.  In early trading pan-European STOXX 600 index rose 0.8 percent tracking a strong session in Asia after a survey showed that Activity in China’s service sector grew for a fourth straight month in August.  Wall Street’s main indices eased from the rally on Thursday as tech-focused stocks lost steam and the latest data showed elevated levels of jobless claims.  The NASDAQ led the pullback with a decline of almost 5 percent a day after it and the S&P 500 posted record closing highs.  Nasdaq’s biggest drops came from heavyweights Apple Inc, Microsoft Inc, Amazon.com Inc and TESLA Inc and Nvidia Corp.  Meanwhile on Friday, Asia’s stock markets had their worst session in two weeks following the tech-led plunge on Wall Street. 

Oil

US Gulf of Mexico crude oil output remained down by 70 percent or 1.29 million barrels per day, according to data released on Sunday by the Department of Interior as companies further continued to return crews to offshore facilities that were evacuated ahead of the Hurricane Laura. Brent crude futures climbed 0.9 percent to $46.01 a barrel.  US West Texas Intermediate futures gained 1 percent to $43.18 a barrel.  Oil prices rose on Tuesday, reversing the overnight losses against the backdrop of an equities rally and a sliding U.S. dollar.  Brent crude LCOc1 futures climbed 61 cents to $45.89 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 futures rose 53 cents, hitting $43.14 a barrel.  Meanwhile US oil production rose in June, but did not recover fully from the dramatic drop in May according to a government report on Monday.  US oil output rose 420,000 barrels per day in June to 10.436 million barrels a day, said the US Energy Information Administration in a monthly report on Monday.  Production remained far below April levels of 11.99 million bpd. Meanwhile oil prices extended losses on Thursday, dropping more than 2% to their lowest point since early August, as worries about weaker U.S. gasoline demand and a sluggish economic recovery from the COVID-19 pandemic lowered sentiment.  Brent crude LCOc1 dropped by 2.25% to $43.43 a barrel  while U.S. West Texas Intermediate (WTI) crude CLc1 futures were down 2.5%, at $40.49 a barrel. Both benchmarks dropped by more than 2% on Wednesday.

Malta:  Gross Domestic Product Q2/2020

In a press release by the National Statistics Office, provisional estimates indicate that the Gross Domestic Product for the second quarter of 2020 amounted to EUR 2,825.2 million registering a decrease of EUR 494.3 million or 14.9 percent when compared to the corresponding period last year.  In volume terms, GDP dropped by 16.2 percent. 

Malta: Unemployment Rate – July 2020 

In a press release by the National Statistics Office issued on 31st August the seasonally adjusted monthly unemployment rate for July 2020 reached 4.1 percent a decrease of 0.2 percentage points from the previous month.  Furthermore, the seasonally adjusted unemployment rate for males was 3.8 percent while the rate for females stood at 4.6 percent. 

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