“Bank of England Policy Meeting…”

In a Monetary Policy Committee, the Bank of England on Thursday set out its plans for how it would start to ease the economy from the huge levels of support it has provided during the COVID-19 pandemic.  However, the Bank left its stimulus running at the same speed for now despite an increase in inflation.  The BOE kept the size of its bond buying programme unchanged and held its benchmark interest rate at a historic low of 0.1% on Thursday as expected.  The BOE sent a clear message as to how it plans to slow down its stimulus when the time comes.  It said it would start reducing its stock of bonds when its policy rate reaches 0.5% by not reinvesting proceeds. In appropriate given broad economic conditions, it would then consider actively selling down holdings when the rate reaches at least 1%.  The central bank said “The Committee judges that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period is likely to be necessary”. Meanwhile, British inflation jumped to 2.5% in June and the BOE said in a new set of forecasts that it was on course to rise even further above its 2% target in the months ahead.  The central bank said it now saw inflation hitting a peak of 4.0% in late 2021 and early 2022, its highest in 10 years. But the BOE said those levels would prove to be temporary.  The BOE also said it still expected Britain’s economy would grow by 7.25% in 2021, unchanged from its May forecast. However, it raised slightly its estimate for growth in 2022 to 6% from the previous forecast of 5.75%.

Spanish Jobless Figures

The number of people registering as jobless in Spain dropped by a record 5.47% in July from the previous month, showed the labour ministry on Tuesday.  The data marks the fifth consecutive month of falling jobless figures.  Labour Minister Yolanda Diaz said that the data shows that government support measures were working and economic recovery was now insight.  Figures show that 3.41 million people are out of work compared with 3.01 million in July 2019.  This shows that employment has yet to recover to pre-pandemic levels.  Employment increased across all sectors with the services industry accounting for the bulk of the hiring.  On a separate note, the National Statistics Institute said the number of foreign tourists visiting Spain jumped almost ten times to 2.2 million in June from a year ago.  However, it is still just a quarter of the June 2019 levels.  Spain gained 133,049 jobs in July while the number of people supported by a national furlough scheme dropped by 116,439 from the previous month to 331,486 people, 90% less than during the pandemic’s peak in May 2020. 

China’s July Factory Activity

China’s factory activity growth dropped sharply in July as demand contracted for the first time in over a year in part on high product prices, according to a business survey on Monday.  The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) dropped to 50.3 last month from 51.3 the month before, beyond the 50-mark that separates growth from contraction on a monthly basis. The Chinese economy has largely recovered from the disruptions caused by the coronavirus pandemic, however it has faced new challenges in recent months such as higher costs of raw material.  Meanwhile, policy makers have stepped up their efforts to curb increases in commodity prices that have squeezed the margins for manufacturers.  Input prices continued to rise, although at a slower pace than the previous month but much faster than output prices, putting pressure on margins. Surveyed enterprises said raw material prices, especially for industrial metals, remained high. Export orders grew slightly faster than in the previous month, however, were still at a slow pace as the pandemic dampened overseas demand. Factories hired more workers for the fourth month in a row but at a slower pace.

China’s July services Activity

Growth in China’s services sector accelerated in July, according to a private survey on Wednesday.  The Caixin/Market Services Purchasing Manager index (PMI) climbed to 54.9 in July, the highest since May and up from 50.3 the previous month.  The 50-point mark separates growth from contraction on a monthly basis.  China’s services sector has been slower to recover from the pandemic than manufacturing, however, an improvement in consumption over the recent months has helped.  A rise in domestic coronavirus infections, is threatening the recovery of the economy.  Business confidence has picked up, even though it was still slightly lower than its long-term average.  Service sector employment returned to growth in July albeit the rate of job creation was low as firms tried to control costs. 

US Factory Orders

New orders for US made goods increase more than expected in June, and business spending on equipment was solid.  This indicates strength in manufacturing even as spending is diverting from goods to services. According to the Commerce Department factory orders climbed 1.5% in June after advancing 2.3% in May.  Orders increased by 18.4% on a year-on-year basis.  In view of the pandemic demand turned to goods whilst people were at home boosting manufacturing which accounts for 11.9% of the US economy.  However, the increase in demand is straining the supply chain and the Institute for Supply Management reported on Monday that manufacturing activity grew at a slower pace in July for the second straight month as raw material shortages persisted.  The survey further suggested that the supply chain bottlenecks were starting to ease.  Spending is moving back to services as nearly half the population have been fully vaccinated and people started to travel, go to restaurants and attend sporting events.

US Private Payrolls

US private payrolls increased far less than expected in July, likely impacted by a shortage of workers and raw materials.  Private payrolls rose by 330,000 jobs last month, showed the ADP National Employment report. Data for June was slightly revised down to show added jobs were 680,000 instead of the 692,000 reported.  Employers are struggling to find willing workers to fill a record 9.2 million job openings even though 9.5 million people are officially unemployed.  Production in particular in the automobile sector is being hampered by scarce raw materials. The ADP report is jointly developed with Moody’s Analytics and was published ahead of the Labour Department’s more comprehensive employment report for July on Friday.

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits declined further last week, while layoffs dropped to their lowest in just over 21 years.  Companies held to their workers due to labour shortages.  Initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 385,000 for the week ended 31 July, declared the Labour Department on Thursday.  The claims data has no bearing on the department’s employment report for July which is due for release on Friday, as it falls outside the survey period.

Market Roundup

European stocks ended at a new peak on Monday amid an increased dealmaking activity and strong financial sector earnings that helped towards a strong August start.  The pan-European STOXX 600 index rose 0.6% to end at a record closing high of 464.45 points as retail and technology stocks were the best performers.  Optimism about European earnings and economic reopening helped the benchmark STOXX 600 end of July with a sixth straight month of gains despite concerns about inflation, the increased number of cases in Asia and a major regulatory crackdown in China.  Meanwhile, a survey showed manufacturing activity across the eurozone continued to expand at a very rapid pace in July, however supply bottlenecks sent input costs soaring.  Eurozone bond yields head near recent lows on Tuesday as risk sentiment was hurt by subdued US economic data and the rising cases of the Delta variant of the coronavirus.  Data from the Institute for Supply Management on Monday showed US manufacturing slowed in July for the second straight month sending the 10-year US Treasury yields below the critical 1.2% level and they held below it in early London trade on Tuesday.  Sentiment was also affected by a rise in cases of the coronavirus Delta variant that supported safe-haven currencies like the Swiss franc and the yen.  The rally in US Treasuries which are closely correlated with euro area bonds pushed yields lower on Monday and markets remained supported on Tuesday.  Germany’s 10 year yield, the benchmark for the eurozone fell to a new low since early February at -0.486%.  It was last up less than a basis point to -0.47%.   

Asian stocks were mostly negative on Tuesday amid the Delta coronavirus variant that spread in key markets.  Furthermore, Chinese officials took aim at video game producers, once more impacting investor confidence. Declines in technology stocks and concerns over the Delta variant put pressure on European stocks, despite encouraging earnings update from companies.  Chinese officials aimed at video game producers once again, knocking the shares of Dutch firm Prosus which has a stake in Chinese tech giant Tencent by 5%.  The Dow Jones Industrial Average increased by 0.8% to 35,116.40, the NASDAQ 100 increased 0.65% to 15,061.42 and the S&P 500 reached 4,423.15 rising by 0.82%.  Meanwhile in Europe, CAC 40 increased by 0.72% to 6,723.81, DAX dropped by 0.09% to 15,555.08 and FTSE 100 increased by 0.34% to 7,105.72, 

Eurozone government bond yields dropped on Wednesday to February lows and the benchmark German yield hit -0.5% during a quiet session as traders awaited direction from the US Treasury market ahead of key jobs data later in the week.  The 10-year German bond yield dropped to its lowest since mid-February as investors continue to push government borrowing costs down.  After a plunge in yields in July, borrowing costs have continued to drop across the eurozone so far in August.  Whilst the German 10-year yield dropped by 2 basis points to -0.5%, the French yield also dropped 2 basis points to as low as -0.154%.  Meanwhile the Italian 10-year yield slipped 2 basis points to 0.552% its lowest level since mid-February and Spain’s 10-year yield weakened by nearly 2 basis points to 0.222%. 

Currency Roundup

Sterling steadied on Monday against the dollar ahead of a Bank of England meeting later in the week, as global risk sentiment improved on optimism for the US infrastructure bill.  U.S. senators introduced a sweeping $1 trillion bipartisan plan to invest in infrastructure, with some predicting the chamber could pass this week the largest public works legislation in decades.  A drop in COVID-19 cases and the reopening of the British economy led to a rebound in the pound in July, with the currency re-emerging from its biggest fall in nine months in June. China’s yuan extended its decline on Monday after it posted a second month of losses in July.  Sentiment dropped amid disappointing economic data and investor concerns increased over the spreading of the domestic COVID-19 cases of the Delta variant. 

Sterling ticked higher against the dollar on Wednesday boosted by risk sentiment in markets, the optimism over the outlook for COVID-19 in Britain and anticipation of a hawkish tone from the Bank of England when they meet on Thursday.  Sterling has rebounded after most lockdown measures in England were dropped on 19 July with the currency reaching as high as $1.3984 at the end of the month. Wednesday saw the currency trading at $1.3925 ahead of Thursday’s Bank of England meeting.  Since then it has stayed mostly above $1.39.  Meanwhile, the dollar on Wednesday traded around the levels it stood for days as investors awaited the US jobs data for a guide on the outlook for interest rates.  The euro was last trading at $1.18560.   Against the yen, the dollar traded near recent lows, last at Yen 109.140.  FED Vice Chair Richard Clarida said that the conditions for an interest rate hike could be met in late 2022, setting the stage for a move in early 2023.  Himself and three other Fed members also indicated a move to taper bond buying later this year or early next depending on the labour market over the next few months.  Mixed data on Wednesday added to the uncertainty amid a surprisingly weak ADP report about private hiring that clashed with strong reading so far for US services. 

On Thursday the dollar held most of the gains against a basket of currencies after hawkish comments from the US Federal Reserve that led markets to move forward the likely timing of a policy tightening.  The euro ticked higher at $1.1848 after pulling pack from a top of $1.1899 overnight after failing to crack the resistance around $1.1910.  The dollar reached yen 109.75 from a trough of 108.71 on Wednesday. 

Gold

Gold prices eased on Tuesday moving in a tight range as investors stayed on the sidelines focusing on key US jobs due later in the week.  Spot gold dropped 0.1% to $1,810.92 per ounce while US gold futures dropped 0.5% to $1,813.70.  Large stimulus measures tend to support gold, which is considered a hedge against inflation and currency debasement.  Indicative of sentiment, holdings of SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund fell 0.2% to 1,029.71 tonnes on Monday.  Gold jumped more than 1% on Wednesday helped by weaker than expected ADP jobs data in the US, however, it pared the gains after remarks that conditions for raising interest rates could be met by the end of 2022.  Higher interest rates raise the opportunity cost of holding non-interest bearing gold. 

On Thursday an uptick in the dollar after hawkish comments from a key Federal Reserve official raised early tapering bets and dented the demand for the safe-haven metal.  Spot gold fell 0.1% to $1,809.10 per ounce while US gold futures were down 0.1% by $1,812.10.  Strong US services industry activity and the comments about raising interest rates lifted the US Dollar index to a one-week high against its rivals making gold more expensive for other currency holders. 

Oil

Oil prices dropped more than 3% on Monday after weak economic data from China and the US and higher crude output from OPEC producers raised fears of weakness in oil demand and oversupply.  U.S. manufacturing activity also showed signs of slowing. The pace of growth slowed for the second straight month as spending rotates back to services from goods and shortages of raw materials persist, according to data from the Institute for Supply Management (ISM).  The ISM’s index of national factory activity dropped to 59.5 last month, the lowest reading since January from 60.6 in June.  Crude oil prices reversed course after an early bounce on Tuesday, amid concerns over coronavirus curbs and slowing factory activity in key markets that weighed on sentiment.  Oil prices dropped on Thursday wiping out early gains as more countries imposed movement restrictions amid a surge in corona virus cases and the US dollar appreciated.  Japan on Thursday was set to expand emergency

Bitcoin

Cryptocurrency investment products and funds posted outflows for a fourth consecutive week, the bulk of which came from bitcoin products.  Bitcoin has also experienced its fourth straight weekly outflow according to data from digital asset manager CoinShares on Monday.  Crypto outflows hit $19.5 million in the week ended 30 July with bitcoin reaching $19.7 million in outflows. Conversely, other crypto and digital investment products such as Ripple and Polka Dot, however, did show minor inflows for the week.  The report further said that the outflows which were prompted by negative price action in mid-May have totalled $295 million, representing 1% of total assets under management. 

Malta: Registered Unemployment – June 2021

In a press release dated 2^nd August 2021 data provided by Jobsplus for June 2021 indicate a year-on-year decrease of 2,559 persons when compared to the corresponding month in 2020.  The largest share of males and females on the unemployment register sought occupations as Clerical support workers with 23.2% and 41.3% respectively.

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