“Annual Economic Symposium…”

The Kansas City Fed kicked off its annual economic symposium on Thursday morning, an event that is usually held in the mountain resort of Jackson Hole, Wyoming, but is being conducted virtually this year because of the pandemic. The Federal Reserve rolled out an aggressive new strategy to restore the United States to full employment and lift inflation back to more healthy levels. Under the new approach, laid out in a fresh statement which was approved by all 17 of its policymakers, the US central bank will seek to achieve inflation averaging 2 percent over time, offsetting below -2 percent periods with higher inflation “for some time” and to ensure employment does not fall short of its maximum level. As the US economy is in deep economic crisis and just months before Americans vote in an election, the FED’s approach is an acknowledgement of fundamental changes in the economy that began before the coronavirus pandemic and is a map for how the FED plans to conduct policy in a world where weak growth, low inflation and low interest rates are seen as to continue. After this week’s event and the mid-September policy meeting, Fed officials will not meet again until the day after the election. The FED’s framework review started nearly two years ago through public hearings and research to explore how monetary policy should be adapted for a low interest rate environment. On Thursday it said it could conduct a new review of policy every five years. 

Top U.S. and Chinese trade officials have reaffirmed their commitment to a Phase 1 trade deal

Markets were given a boost on Tuesday as the U.S. and China once again confirmed their commitment to the ‘Phase 1 Trade Deal’, six months after it was initiated. “The parties also discussed the significant increases in purchases of U.S. products by China as well as future actions needed to implement the agreement,” said the U.S. Trade Representative’s office. This would lead to an increase in demand for U.S. products as, so far this year, China are well behind their target of increasing their spend by $77 billion on products including agricultural goods, petrochemicals and oil.

German Business Morale

German business morale improved more than expected in August as both manufacturing and services picked up, showed a survey on Tuesday raising hopes that the largest European economy is set for a strong recovery following the massive shock from the coronavirus pandemic. The Ifo institute said the business climate index rose to 92.6 from a 90.4 in July. Furthermore the Ifo survey recorded the strongest gains in business morale among manufacturers and service providers while sentiment among construction firms was also improving. 

German Economy

The German economy has contracted by a record 9.7 percent in the second quarter as consumer spending, company investments and exports all collapsed at the height of the COVID-19 pandemic, the statistics office said on Tuesday. The economic slump was much bigger than the financial crisis of 10 years ago and it represented the sharpest decline since Germany began to record quarterly GDP calculations in 1970, said the office. Consumer spending dropped by 10.9% on the quarter, capital investments by 19.6% and exports by 20.3%, according to seasonally adjusted data. Construction activity which is usually a growth driver for the German economy fell by 4.2 percent on the quarter. Meanwhile state consumption increased by 1.5% on the quarter due to the government’s coronavirus rescue programmes, the office said. The German parliament has suspended the debt brake this year to allow the government to finance its crisis response and fiscal stimulus push with record new debt of 2017.8 billion euros. The Statistics Office said in a separate statement that the fiscal U-turn after years of balanced budgets means that the German state recorded a budget of EUR 51.6 billion from January to June.  This represents a deficit  of 3.2 percent of economic output as measured by the EU’s Maastricht criteria. Employment edged down by 1.3% on the year to 44.7 million, a sign that the government’s efforts to shield the labour market from the coronavirus shock with its short-time work programme is paying off.

UK Retailers Cut Jobs by Most Since 2009

British retailers cut jobs by the largest amount since the depths of the financial crisis during the year to August and expect the pace of losses to accelerate, said on Tuesday the Confederation of British Industry. The CBI data also showed an unexpected drop in its monthly retail sales balance, which dropped to -6 in August from the July’s 15-month high of +4. The downbeat CBI data contrasts with most other indicators, including official figures showing that the volume of retail sales rose above pre-pandemic levels in July.  Quarterly figures from the CBI showed that employment balance which measures job changes over the past year dropped from -20 in May to -45 in August, the lowest since 2009.

US Core Capital Goods Orders

New orders for key US made capital goods increased in July, slower than June’s robust gain, suggesting the rebound in business sentiment would be slowly amid the uncertainty caused by the pandemic. The Commerce Department said on Wednesday that Orders for non defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.9% last month. These so-called core capital goods order increased 4.3 percent in June.  Core capital goods orders are slightly below their pre-pandemic level. They fell 1.9% on a year-on-year basis in July. Core capital goods orders last month were supported by demand for machinery, fabricated metals products, computers and electronic products and electrical equipment, appliances and components.

Market Wrap

European stocks bounced from a two-week low on Monday as signs of progress in developing a COVID-19 treatment offset fears about a resurgence in virus cases across the continent that could risk stifling an economic recovery. The pan-European STOXX 600 index rose 1.3%, mirroring gains for Asian markets after the U.S. health regulator said on Sunday it authorized the use of blood plasma from patients who have recovered from COVID-19 as a treatment. The S&P and the NASDAQ reached new closing highs on Monday. The benchmark index surpassed its pre-pandemic high last week even as recent economic data pointed to a US stock index futures rose for a fourth straight session on Tuesday as US-China officials reaffirmed their commitment to a Phase-1 trade deal. The pledge was made in a telephone call, the first formal dialogue since early May between the two.  It came about after growing concerns that the deal could be on shaky grounds due to the worsening relations. European shares dropped on Tuesday affected by losses in British blue chips, while mixed economic data and continued growth in corona cases. The pan-European STOXX 600 index closed down 0.3 percent as the gains reached on Monday came to a halt placing the benchmark within the trading range since mid-May. Furthermore, a smaller than expected decline in German economic output fuelled a rally in European stocks on Tuesday with Frankfurt shares hitting a 1-month high. The trade-sensitive German DAX climbed 1 percent helped by data showing Europe’s largest economy shrank by a record 9.7 percent in the second quarter. Japanese shares closed flat on Wednesday as investors preferred to take profits after the Nikkei briefly rebounded to pre-pandemic levels in the previous session while a weaker yen and hopes of a COVID-19 treatment supported overall sentiment. Wednesday the Nikkei share average ended down 0.03 percent to 23,290.86 after closing 1.25 percent firmer on Tuesday. The FTSE 100 slipped on Wednesday by 0.2 percent amid a sell-off in stocks ranging from energy to consumer staples. The benchmark struggled to start the week on a strong foot as the sluggish economic rebound was offset the optimism on news about the COVID-19 vaccines and US China trade. Meanwhile, European stocks moved higher on Wednesday as hopes of additional stimulus from Germany and France about the rising cases of the COVID-19 cases. The German DAX rose 0.3 percent after the coalition parties agreed to extend measures to cushion the effects of the coronavirus crisis, such as extending the short-term work scheme and a freeze on insolvency rules. On Wednesday American markets also rose, seeing the Dow rising by 0.3%, the S&P 500 by 1.02% and the Nasdaq by 1.73%, with the gains mainly concentrated in tech majors with Netflix prices surging 11.6 percent and Facebook 8.2 percent. Asian shares touched a two-year peak on Thursday amid Wall Street’s record run from big-cap tech companies although tensions between Washington and Beijing caused caution to creep in as the session progressed.   The MSCI  broadest index  of Asia-Pacific shares outside Japan rose by 0.1% to their highest level in two years. In the meantime, the Nikkei and South Korean indices dropped 0.4% and 0.8%  as the jump in coronavirus cases ended four days of gains. Meanwhile European markets were subject to a cautious mood as investors awaited the U.S. Federal Reserve Chairman Jerome Powell’s outlook on monetary policy. The pan-European STOXX 600 index dropped by 0.2% by 0716 GMT with banks and miners were the main losers, while tech stocks rose due to Wall Street’s record session.

Currency Roundup

Sterling rose on Tuesday as the dollar slipped and investors disregarded an unexpected drop in Britain’s monthly retail sales data. The dollar dropped after investors returned to riskier currencies amid a successful phone call between top trade officials in the US and China that boosted positive sentiment. Sterling was last up 0.4% at $1.3122 while it was little changed at 90.195 pence versus the euro. On Wednesday the dollar held steady against most currencies as traders prepared for US data which was expected to show a slowdown in durable goods orders and a key speech by Federal Reserve Chairman Jerome Powell. The yuan rose towards a seven-month high after US and Chinese trade officials reaffirmed their commitment to a Phase 1 trade deal. Meanwhile the greenback took a hit after data on Tuesday showed that US consumer confidence tumbled to the lowest in more than six years amid fears of job losses due to coronavirus. Sterling bought $1.3138 having risen 0.7 percent against the dollar on Tuesday and managed to dismiss the lack of progress in the trade negotiations between Britain and the EU. The dollar was locked in a narrow range against the yen trading at 106.43.  Powell’s speech at Jackson Hole held online was the biggest event of the week. Sterling was steady on Wednesday against the US dollar and rose slightly versus the Euro as Brexit uncertainty kept traders on the side- line. This week’s biggest event was the speech by the Bank of England Governor Andrew Bailey’s speech at Jackson Hole on Thursday, otherwise according to analysts there were few factors to provide direction for the currency. Sterling was steady at $1.3155 and rose 0.2 percent to 89.84 pence against the euro.  Sterling has recently been dragged higher by a weakening US dollar.  Britain is struggling with a debt-to-GDP ratio above 100 percent and a double deficit which could erode investor’s confidence in the country. Meanwhile the Dollar was close to a two year low on Thursday as investors looked for hints from Federal Reserve Chairman Jerome Powell that the central bank might tweak its policy framework to help push up inflation. The dollar’s index against six major currencies stood at 92.893, near the weakest level so far this week, and not far off its two-year low of 92.124 touched last week. Meanwhile, against the euro it remained steady at $1.1832 and the Japanese Yen at 105.96. Against the Chinese Yuan it dropped to 6.8809 after signs that Chinese industries were beginning to recover. Sterling increased by 0.9 percent this week, standing at $1.3211 and the Australian dollar rose by 1.1 percent to $0.7238. 


Gold held steady on Tuesday amid a softer dollar that offset pressure from an equity rally while investors stayed away from taking big positions ahead of the speech by Reserve Chair Jerome Powell. The commodity held flat around $1,931.97 per ounce. Lower interest rates decrease the opportunity cost of holding the non-yielding bullion, making gold cheaper for investor holding other currencies. 


Oil prices rose on Monday as storms headed the Gulf of Mexico shut more than half of the region’s offshore production. Brent crude settled at $45.13 a barrel gaining 1.76 percent while US West Texas Intermediate crude settled at $42.62 a barrel climbing 0.66 percent.  Tropical Storm Marco reached the coast on Monday while Laura was expected to accelerate to a hurricane and hit by midweek. The storms could also impact US exports, Brent’s gains outpaced US crude on expectations that other countries might be able to boost exports while Gulf facilities are shut. Brent crude prices rose on Wednesday lifted by US producers shutting most of the offshore output in the Gulf of Mexico amid Hurricane Laura and optimism over China-US trade talks. Gains however were capped over the coronavirus pandemic which contracted the demand for fuel after reports from Europe and Asia of patients being re-infected with the virus. On Tuesday Brent crude oil futures added 0.2 percent to $45.96 a barrel while US West Texas Intermediate crude dropped 0.1 percent to $43.30 a barrel. Both benchmarks settled at a five-month high on Tuesday. Oil prices dropped on Thursday due to a massive hurricane in the Gulf of Mexico made landfall in the heart of the US oil industry, causing producers to close their sites and prices on the Brent crude futures to rise 11 cents to $45.75 per barrel. 

Malta:  Industrial Producer Price Indices – July 2020

When compared to the July 2019 the industrial producer price index increased by 1.16 percent. This resulted from an increase of 1.84 per cent in consumer goods, 1.17 per cent in intermediate goods and 1 percent in capital goods. No price change was registered in the energy sector. Industrial producer prices for the domestic market increased by 1.67 percent. Prices increases were recorded in consumer goods, intermediate goods and capital goods. Non-domestic prices increased by 0.85 percent; a rise of 1.24 percent was registered within the euro area while an increase of 0.65 percent was registered within the non-euro area. Meanwhile, for the month of July 2020, the industrial producer price index went up by 0.93 percent over the previous month. An increase of 2.4 percent was registered in intermediate goods while capital goods and consumer goods went down by 0.13 and 0.11 percent respectively. 

Malta:  Retail Price Index – July 2020

A press release by the National Statistics office shows that in July 2020 the annual rate of inflation as measured by the Retail Price Index (RPI) was 0.62 percent down from 0.72 percent in June 2020. The largest upward movement on annual inflation was measured in the Food Index, while the largest downward impact was recorded in the Recreation and Culture Index.

Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt/


August 28th, 2020

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