“Actions By The European Union….”

Actions By The European Union

The bloc has already suspended state aid rules and limits on public borrowing to allow member states to spend freely to cushion the economy from the impact of the coronavirus.  Amongst the measures, the European parliament on Thursday approved Euros 37 billion worth of emergency funds and measures to help airlines.  Furthermore, the EU is considering a credit line worth some 2 percent of economic output from the European Stability Mechanism bailout fund of the 19-member common-currency eurozone.  Berlin and its allies are still stating that all EU states can still finance themselves on the debt market.  The European Central Bank (ECB) has announced emergency bond purchases to put 750 billion euros into circulation.   The European Central Bank has ditched a cap on how many bonds it can buy from any single eurozone country.  This has been welcomed by some EU states and seen as reducing the pressure on the governments to act.  On Thursday the European Union leaders debated over how far to go on rolling out emergency aid for their economies that are hit by the coronavirus.  Germany and the Netherlands opposed calls by Italy to issue joint debt.  The EU is struggling to present a united front on economic stimulus, the sharing of medical equipment and safeguarding of essential supplies with borders now tightened or closed to prevent further spread of the coronavirus.  Nine countries including France, Italy and Spain have called for mutualised debt.  Before a video call involving the leaders of the 27 EU member states, nine leaders said “We need to work on a common debt instrument issued by a European institution to raise funds on the market.”  Germany, the Netherlands, Austria and Finland opposed.

Germany

Germany prepared an emergency budget of more than Euros 150 billion to tackle the impact from the virus outbreak, said the finance minister on Saturday. He further said that the country will return to its savings policy once the crisis is over.    The country dismissed the calls for joint debt issuance on Monday.

Support From Central Banks

Central banks have offered trillions of dollars of support to markets in recent days as investors rushed to offload their holdings.  Intervention helped to bring back some order in the markets.  Governments ramped up their support quickly in recent days as it became clear that the scale of the hit from the coronavirus is likely to be huge.  Steps range from cutting interest rates and ramping up bond buying programs to the Federal Reserve resurrection of the funding facilities from the financial crisis area.  The FED has made it easier for other nations’ central banks to obtain dollars to meet the global demand for the greenback.  The European Central Bank bought the most government debt in 2 ½ years last week, helping fuel a round in bonds issued by Italy and other countries hit by the virus that are struggling on funding.  Released data showed that the ECB bought 13.029 billion euros worth of public sector bonds in the five days to 20 March, the largest amount since early October 2017.  Italian, Spanish and Portuguese government bonds rebounded last week and the spread between their yields and that of Germany narrowed.

Europe’s March PMI

Eurozone’s business activity crumbled as IHS Markit’s eurozone composite flash PMI dropped to a record low of 31.4 from 51.6 in February, well below the 50 threshold.  As further measures for lockdowns came in effect after the survey was conducted, the actual economic downturn in March is likely to be larger.  As the pandemic is still far from contained in Europe, several more companies have warned of lower profits, layoffs and a stop in business activity amid the widespread national lockdowns.

China

China on Monday reported a drop in its daily number of new coronavirus cases, reversing four straight days of increases, as Beijing the capital city, ramped up the measures to limit the number of infections coming from abroad.  According to the National Health Commission, China’s new confirmed cases on Sunday stood at 38 down from 46 a day earlier.  Many of the new cases were imported from abroad, as most of them came from Chinese students returning home.  In order to contain imported infections ,Beijing stepped up its measures by diverting all international flights from Monday to other cities, including Shanghai and far west as Xian, where passengers will undergo virus screening.  Meanwhile mainland China saw no new locally transmitted infections.  In Wuhan, the capital of central province of Hubei, the authorities have eased locked measures as the epicentre of the outbreak in China did not see any new infections for the fifth day.  Downtown Wuhan remains the only high-risk area in the province.

US

The US Federal Reserve on Monday said that it would begin backstopping an unprecedented range of credit for households, small businesses and major employers to offset the “severe disruptions” in the economy caused by the virus.  In a statement, the FED said that the effort, which was approved unanimously by members of the Federal Open Market Committee was taken because “it has become clear that our economy will face severe disruptions”.  The steps taken included programs that lend against student loans, credit card loans, and US government-backed loans to small businesses and also new programs to buy bonds of larger employers and make loans to them.  On Wednesday US officials reached a deal on a $2 trillion package to aid small businesses and Americans hit by layoffs due to the health crisis, but with growing evidence of a breakdown in economic activity.  According to analysts a global recession was looming.

US Weekly Jobless Claims Surge To Record 3.28 million

The number of Americans filing claims for unemployment benefits surged to a record of more than 3 million last week as measures to combat the coronavirus brought the country to a halt resulting in a number of layoffs that might end the longest employment boom in US history.  The report from the Labour department issued on Tuesday gives the clearest evidence yet of the damage caused on the economy.  On Thursday, Federal Reserve Chair Jerome Powell said on Thursday the central bank would act “aggressively” to keep firms and families afloat, after already announcing an unprecedented policy easing earlier this week.  Meanwhile, the US Senate passed a $2 trillion stimulus package to aid distressed industries and Americans badly hit by the health crisis.

Currency Roundup

In the currency markets on Monday, sentiment was to dump those leveraged to global growth and commodity prices, sending the Australian dollar down 0.8 percent to $0.5749.  The Dollar started firm, however, took a step back after a battle in the US Senate that stopped a coronavirus response bill from proceeding.  Against the yen, the dollar eased 0.6 percent to 110.13 yen while the euro recouped losses to be up 0.3 percent at $1.0727.  Meanwhile against a basket of currencies the dollar slipped 0.5 percent to 101.9.  On Tuesday the British pound rallied against the dollar and was steadier against the euro, relieved from the battering in recent days.  Along with most currencies, Sterling has seen massive selling against the Dollar, the latter being the most liquid currency and the safe-haven asset when confidence in the financial markets is weakened.  Against the euro the pound was little changed on the day at 92.91 pence off last week’s low of 95 pence.  On Wednesday the dollar slipped after US politicians agreed on a $2 trillion stimulus package that motivated people to buy back into riskier currencies.  The export exposed Australian dollar and the Norwegian crown made a sharp gain. Sterling also rallied from the lows reached in recent weeks.  Investors panicked about the pandemic and liquidated most of their assets to buy US Dollars, which is perceived as the most liquid currency in times of crisis.

Market Wrap

On Sunday US Treasury Secretary Steven Mnuchin said on Fox News that the coronavirus economic relief bill being finalised by the US Congress was to include a one-time $3,000 payment for families and allow the Federal Reserve to leverage up to $4 trillion of liquidity to support the nation’s economy. He further said that the additional liquidity measures would allow the US central bank to help a broad based of businesses to get through the next 90 to 120 days.  The S&P 500 futures fell to the maximum allowed limit after their open, halting trade as risk aversion amongst investors persisted.  Asian shares sank on Monday amid a rising number of national lockdowns that has threatened to offset all the policymakers’ efforts to cushion a deep global recession.    US stocks have already dropped more than 30 percent from their mid-February peak. Monday also saw European stocks stuck near to their seven-year lows amid rising fears of a contraction in global growth as more countries self-isolated to contain the virus from spreading.  Travel, leisure, mining and industrials stocks again led the declines on the main index as the COVID-19 continued to spread bringing economies to a standstill.  Meanwhile, Goldman Sachs said on Monday that it expected global real GDP to contract by about 1 percent in 2020 as the US dropped by 24 percent in the second quarter.  This is two-and-a half times larger than the previous post war record.  Europe’s fear gauge .V2TX was at levels last seen in 2008.  Airbus which recently replaced Boeing as the world’s top plane maker, has lost more than half its value since February as measures to contain the virus brought global travel to a standstill.  Boeing dropped more than 70 percent.  On Monday, the euro area bond markets steadied after a day of heightened volatility as investors analysed the impact of massive fiscal and monetary stimulus.   The expectations of higher European spending across the euro area has put pressure on bond yields, however, these increases were expected to be contained by the increase in asset purchases announced by the European Central Bank last week.  As the stock market took a beating on Monday, bond yields in Germany and the United States dropped.  An important market gauge of long-term inflation expectations in the euro area, the five-year, five-year breakeven inflation forward, fell to a new record low at 0.7234 percent.  On Tuesday, bond yields were up overall on the day alongside stocks extending a reversal of the pattern of last week when safe-haven bonds and shares fell, as investors sold liquid assets to make up for losses on other assets.  On Wednesday European shares surged after a strong rally in the previous session, as investors were banking on stimulus measures to ease the economic pain on businesses and households.  The pan-European STOXX 600 index was up 4.2 percent with autos, insurers and financials jumping between 5.4 percent and 6.7 percent.  Meanwhile, European airlines one of the worst hit sectors from travel restrictions have appealed to governments for bailout packages to prevent a collapse of the aerospace industry.  Air France, British Airways-owner IAG, Ryanair and easyJet gained between 7.2 percent and 13.2 percent amid the broad rebound.  German shares climbed 3.7 percent after posting their best day since 2008 on Tuesday.  Europe’s fear gauge fell for the fifth day in a row as calmness returned to markets.   On Wednesday bond market participants had a sigh of relief as eurozone government bonds steadied, following sessions of wild swings driven by the coronavirus crisis and concern over its impact on the global economy.  Wall Street gained ground on Thursday as the record weekly jobless claims came below that expected by investors, however, made further case for more stimulus to overcome the economic impact of the pandemic.  The S&P 500 is now on pace for its third straight session of gains, the index’s longest run since 12 February, however, has only recouped a fraction of the nearly $8 trillion in value lost since a record high last month.  The CBOE volatility index fell 4.4 points in early trading but was still near levels far above those in 2018 and 2019.  As the US Senate aid bill included a $58 billion provision for the aerospace industry, United Airlines, Delta and American Airlines rose between 5.4 percent and 8 percent while Boeing rose 7 percent.  Also, on Thursday, European stocks edged higher reversing earlier losses as investors awaited a vote by EU lawmakers on emergency funds.  The pan-European STOXX 600 index was trading 0.4 percent higher, adding to a 11 percent gain made over the past two days.  The index is still down 28 percent from a record peak hit in February.  A recession in Europe looks in the process amid the widespread disruption to business due to the virus.  Italian .FTMIB and Spanish .IBEX bourses trimmed the losses of the day, however, still traded lower.  German shares .GDAXI fell 0.3 percent while a survey showed consumer morale in Europe’s biggest economy dropped to its lowest level since 2009.  Meanwhile, gains on Tuesday and Wednesday added up to the market’s biggest two-day rise since 2008.

Oil

The oil market has been hit by double shocks:  the unexpected price war between Saudi Arabia and Russia for market share has resulted in a flood of supply while the pandemic from the coronavirus has affected the demand of oil.  Oil prices turned mixed after opening sharply lower on Monday with Brent crude futures slipped to $1.05 to $26.02 a barrel, while the US crude was down 12c to $22.51.  Brent oil futures may be trading at $27 per barrel but oil producers are selling their crude in the physical market at lower prices not seen since the aftermath of the Asian financial crisis of in the 1990s.

Malta :  Third Financial Package By The Government Of Malta

In a press conference on the 24^th March the Prime Minister of Malta announced a third financial package to help the Maltese economy during the Coronavirus outbreak.  The purpose of the package to safeguard employment and hence to ensure that the pandemic eases the burden on the economy.

The measures are targeted to those sectors which are mostly hit.  It will finance EUR 800 per month per full-time employee to businesses that have been mostly hit by the COVID-19 outbreak.  This EUR 800 subsidy replaces the payment of two days’ pay per week that was announced last week.  The self-employed  individuals engaged in such sectors will benefit from the same amount. Employers who had to lay off employees are entitled for these payments if they re-employ the laid off employees.  This measure applies from 9^th March 2020 and is applicable to self-employed in Gozo as well.

In the case where the salary is greater than EUR 800 per month, employers agreed to top it up by EUR 400 per employee per month.  However, there are no limitations on employers from paying any additional amount over this limit where the salary is over EUR 1,200.  Where the employer cannot pay the EUR 400, the Prime Minister appealed for a case by case solution and discussions are to take place between all concerned, including the Department of Industrial and Employment Relations.  A whole list of the sectors hardly hit and who can benefit are listed on the Malta Enterprise Website.

For those less critical sectors that have been hit, the government will cover the equivalent of a day’s salary per week, with the possibility of increasing it to two days, based on a full-time salary of Eur 800 per month, for those employees of firms including self-employed that have been impacted.  Retrospectively from 9^th March those self-employed and businesses that operate in Gozo in these sectors will get a subsidy of two days’ pay based on a salary of EUR 800 per month.

Malta: Registered Unemployment: February 2020

In February, the number of persons registering for work stood at 1,659, decreasing by 9.3 per cent when compared to the corresponding month in 2019.  In a press release from the National Statistics Office, data shows that registered unemployed increased amongst those aged 24 years or less, whilst there was a drop among persons aged 25 years or more. Those registering for work between 21 and 52 weeks and those registering for more than one year, decreased when compared to February 2019 levels. The largest decrease was recorded among persons who had been registering for more than one year. The largest share of males and females on the unemployment register sought occupations as clerical support workers, with 20.2 per cent and 39.5 per cent respectively.

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