Bank of England ….

Bank Of England (BOE) Meeting

Britain’s central bank kept the Bank Rate at its all-time low of 0.1 percent and left its target for bond buying, most of it, British government debt, at 645 billion pounds. The Bank of England held off from pumping further stimulus into Britain’s economy.  Meanwhile, nine policymakers voted for an increase in bond buying programme.  In what is called an illustrative scenario, the BOE said it saw a plunge of 14 percent in Britain’s economy in 2020 followed by 15 bounce-back in 2021.  It said, that such a scenario would require a very significant monetary and fiscal stimulus.   The British government has already rushed out spending and tax measures worth about 100 billion pounds to support the economy amid the coronavirus pandemic.  The BOE said it expected a 25 percent plunge in Britain’s domestic product in the April-June period with the unemployment rate more than doubling to 9 percent.   On a different note, The Bank of England said on Thursday that a “desktop” stress test has shown that top banks and building societies could keep lending to an economy hit by anticipated fallout from the coronavirus pandemic.  The BOE’s interim Financial Stability Report (FSR) said the stress test was based on an economic scenario outlined by the Bank’s Monetary Policy Report (MPR).  According to the FSR, under the MPR, Britain’s GDP drops by almost 30 percent in the second quarter versus the fourth quarter of last year and recovers as lockdown restrictions are lifted. The stress showed that banks have the capital buffers to withstand even greater losses than those that result from the MPR. The government is expected to announce some easing of restrictions in the coming days.

Manufacturing In the Eurozone

As governments introduced lockdown measures last month to stop the coronavirus pandemic, manufacturing activity collapsed.  The IHS Markit Final Manufacturing Purchasing Manager’s Index (PMI) for the eurozone sank to 33.4 from 44.5 (in March) its lowest since the survey started in the mid-1997.  Furthermore, an index that measures output and which feeds into a composite PMI due on Wednesday which is seen as a good indicator of economic health, sank to 18.1 from 38.5.  According to Chis Williamson, the chief business economist of IHS Markit stated that, “a combination of factors including widespread factory closures, slumping demand and supply shortages all linked to the COVID-19 outbreak” impacted manufacturing in Europe.  This slump came despite the European Central Bank engaged in easing policies and ramped up its quantitative easing programmes, together with unprecedented amounts of fiscal stimulus from governments to help with the damage to the economy from the coronavirus outbreak.  Scant demand forced factories to cut prices and cut employment at sharp rates.  Although some countries have eased the lockdown with the hope for a rebound, IHS market has warned that any pickup would be modest.

German Court And the ECB

Accumulating early 3 trillion euros of bonds since 2015, the ECB has long relied on asset purchases to support the economy through crisis and a threat of deflation.  As the central bank of the largest European economy, the Bundesbank has taken a huge part of those purchases.  On Tuesday Germany’s top court ruled that the Bundesbank must stop buying government bonds under the European Central Bank’s long-running stimulus scheme within three months unless the ECB can prove the purchases are needed.  The verdict deals a blow to the 2 trillion Euro Public Sector Purchase Programme (PSPP) credited with keeping the eurozone economy afloat over the past five years.  The PSPP presently accounts for less than a quarter of the ECB’s monthly bond purchases.  As the European court of Justice which is the top court in matters of European Union law, having already cleared that scheme, Tuesday’s ruling also raises questions about the future of the EU and the resilience of its institutions.  The Constitutional Court has however, left an open loophole for continuing the scheme if the ECB can show it is necessary despite its negative impact such as endangering taxpayer money and making governments rely on the funding by the central bank.  They said that the decision did not apply to the ECB’s pandemic-fighting programme, a EUR 750 billion scheme approved last month to help the economic area.

UK’s Economic Data

Incoming economic data in the UK continued to paint a gloomy picture as British new-car sales slumped by around 97 percent in April to their lowest since February 1946 with factories and dealerships, according to preliminary data from the Society of Motor Manufacturers and Traders.  Meanwhile a survey by the Confederation of British Industry showed small British manufacturers expect the biggest decline in output in more than 30 years over the next three months, echoing other gloomy forecasts for the sector.

Private Payrolls In the US

US private employers laid off a record of 20.236 million workers in April due to the business closures, setting historic job losses last month.  The drop in private payrolls as shown in the ADP National Employment Report on Wednesday suggested that the national lockdowns to slow the spread of COVID-19 could leave long lasting scars on the economy, even as large parts of the country can reopen non-essential businesses.  The ADP report showed that the leisure/hospitality sector shed 8.61 million jobs last month, accounting for more than 40 percent of the private sector job losses.  The ADP report developed jointly with Moody’s Analytics, was published ahead of the government’s more comprehensive employment report for April scheduled for release on Friday.  The unemployment rate is seen jumping to an all-time high of 16 percent in April, a figure higher than that of post-World War II record of 10.8 percent touched in November 1982.  Meanwhile, in March, the jobless rate shot up 0.9 percent, the largest monthly change since January 1975 to 4.4 percent.

US Services Sector

US business activity reached new record lows in April as the covid-19 pandemic disrupted production at industries, said a survey on Tuesday.  Data from IHS Markit sad that its flash US Composite Output Index, which tracks the manufacturing and services sectors, tumbled to a reading of 27 last month.  That was the lowest since the series began in late 2009, and followed a flash reading of 27.4 and 40.9 in March.  A reading below 50 indicates a contraction in private sector output.  The government last week said that gross domestic product dropped at a 4.8 percent annualised rate in the first quarter, the steepest pace of contraction in output since the fourth quarter of 2008.  The IHS Markit survey’s services sector final Purchasing Managers Index dropped to an all-time low reading of 26.7 in April whilst in March in stood at 39.8.


As US China tensions resurface, gold prices extended their gains on Monday having jumped more than 1 percent in the previous session amid the rising tensions between the US and China over the coronavirus origins.  During the trade war between the US and China, last year, gold which is considered a safe-haven asset jumped to 18 percent as the US central bank cut interest rates.  Spot gold gained 0.3 percent to $1,703.77 per ounce in thin trade as markets in China and Japan were closed on holiday. According to analysts the widespread fiscal and monetary policies being implemented will support gold in the longer term as it is often seen as a hedge against inflation.  Last Friday the holdings in the world’s largest gold-backed exchange traded fund, SPDR Gold Trust GLD rose 1.1% last Friday an indication of an appetite for gold.  On Friday gold was hovering near a two-week high hit in the previous session as investors awaited the US jobs report to gauge the health of the economy as economic indicators raised the prospects of more rate cuts by the FED.  Spot gold was steady at $1,715.23 per ounce at some point in the day having hit its highest since April at $1,721.76 in the previous session.


Oil prices jumped on Tuesday on hopes for a recovery in vehicle traffic and fuel demand as some Asian and European countries along with several US states began to ease the lockdown measures.  West Texas intermediate crude futures were up 9.6 percent or $1.95 at $22.34 per barrel.   The US benchmark has closed higher for the last four sessions.  Meanwhile, Brent crude futures were up 7.4 percent at $29.22.  As global demand for oil and prices suffered historic losses in April, recovery is likely to be slow with air traffic not expected to rebound any time soon.  On Wednesday oil fell $30 a barrel as UC crude inventories ticked up offsetting hopes for a recovery in demand as some countries ease their lockdowns.  Brent crude has almost doubled since hitting a 21-year low on 22 April as it was supported by expectations that demand will recover and by a record supply cut led by the OPEC.  Meanwhile the benchmark and its US counterpart remains weighed down by tepid demand and high volume in store.  Brent was down $1.32 at $29.65 a barrel having risen in the past six session, while West Texas Intermediate crude fell $1.20 or 4.6% to $23.36.  According to the Energy Information Administration on Wednesday, US crude stocks and distillate inventories rose while gasoline inventories fell.  Meanwhile the easing of lockdown should lead to a recovery in global oil demand which in April was expected to collapse by at least 20 percent.

Market Wrap

On Monday eurozone bond yields rose as investors were worried that even though lockdown measures are being eased, it might not mean a quick recovery.  Italian bond yields headed higher as investors sold after last week’s ECB meeting.  Equity prices dropped amid a more cautious sentiment across markets.  Meanwhile the German 10-year old yield rose 3 basis points to -0.561 percent while other yields such as those in France were up by similar amounts.  German yields fell to 1 ½ month lows last Thursday after the ECB held off from announcing any new big policies. Meanwhile Spanish 10-year yield climbed 5 basis points to 0.854 percent while Portuguese bond yield widened by 6 bps to 0.833 percent.  In mid-morning trading European shares were down 2.5 percent with sectors sensitive to economic growth including oil and gas .SXEP, automakers .SXAP and banks falling about 4 percent and 5.5 percent.  Meanwhile, volatility gauges for European and American blue-chip stocks shot up to a two-week high, while US stock futures were about 1 percent in the red.  On Tuesday emerging market shares and currencies rose as risk appetite returned with caution.  As Wall Street rallied overnight, MSCI’s index of emerging market shares climbed 0.9 percent while the index of developing world currencies firmed 0.2 percent as the dollar traded flat.  After Germany’s top court rule (refer to German Court and the ECB section) German bonds and the euro sold off after the ruling, with the benchmark 10-year Bund yield climbing to briefly touch a session high of 0.517 percent.  European stocks trimmed some gains and the pan-European STOXX 600 index was up by 1.05%.  US stock indexes jumped on Tuesday as the recovery in oil prices lifted the energy stocks and countries started to lift the measures.  The S&P 500  .SPX has climbed about 30 percent from its March lows on the back of the unprecedented stimulus measures.  With more than half of the S&P 500 companies reporting so far, first-quarter earnings are expected to have fallen by 12.5 percent. On Thursday Wall Street indexes climbed with the Nasdaq erasing losses for 2020, following the news of upbeat earnings. PayPal Holdings soared 14%.  On Friday Asian shares rose as investors focused on talks between U.S. and Chinese trade officials and solid corporate earnings rather than the release of data that is expected to show the worst U.S. unemployment rate in more than 70 years.

Currency Roundup

On Monday the dollar surged against major currencies amid fears that the dispute between the US and China will resume this time round about the coronavirus.  US President Donal Trump and Secretary of State Mike Pompeo have put the blame for the pandemic on China where the new coronavirus outbreak is believed to have originated.  Meanwhile the euro reached $1.0932 while sterling dropped by 0.4 percent to $1.2442.  Britain’s defence minister said he agreed that China has questions to answer over the information it shared about the coronavirus outbreak, but that a post-mortem about its role should come later.  The dollar also increased against Scandinavian currencies which are vulnerable to global trade risks.  The Swedish Crown was down 9.8995 versus the dollar and the Norwegian crown was falling by 0.8 percent to 10.3975 NOK.  The Chinese yuan had the biggest move dropping to a six-week low of 7.15555 against the dollar.    On Tuesday sterling gained as demand eased for US dollars allowing the pound to recover some the 1.5 percent loss this month.  The pound finished the month of April up 1.4 percent against the dollar on the month, benefitting from seasonal factors such the start of the UK tax year as well as corporate dividend repatriation flows.  On Tuesday the offshore yuan traded 0.1 percent higher against the dollar and investors and analysts kept a close eye on the currency amid the tensions between the US and China about the origins of the novel coronavirus.  The euro weakened across the board after a German constitutional court ruled that the Bundesbank must stop buying government bonds if the European Central Bank cannot prove those purchases are needed.  The euro’s drop pushed the dollar higher for a second consecutive day with the dollar index rising 0.4 percent to 99.91. The gain in the dollar were also supported by Trump’s verbal attacks on China raising fears of a new trade war.  The Australian dollar edged up more than 64 cents to $0.6454 after the Reserve Bank of Australia left its targets for the cash rate and three-year government bond yields unchanged at 0.25 percent.  The Bank forecast the Australian economy would suffer its largest ever contraction in the first half of the year.  As oil prices rebounded, other commodity currencies like the Norwegian crown also advanced.  Sterling rose by around half a cent versus the dollar on Thursday as the Bank of England held rates steady at 0.1 percent as expected and held off on further stimulus.  Before the announcement, sterling rose to as much as $1.2380 from $1.2331, whilst against the Euro the pound hit a high of 87.25 pence.

Malta:  Government Expenditure on Social Security Benefits: January-March 2020

During the first quarter of 2020, the outlay on Social Security Benefits rose by €13.2 million over the same period in 2019.  Social Security Benefits spending amounted to €243.0 million between January and March 2020, reflecting a 5.8 per cent rise from the first quarter of 2019.

Malta: Unemployment Rate – March 2020

The seasonally adjusted monthly unemployment rate for March 2020 reached 3.5 per cent, an increase of 0.1 percentage points from the previous month.  For the month under review, the seasonally adjusted rate for males was 3.1 per cent while the rate for females stood at 4.1 per cent.  Whilst the seasonally adjusted unemployment rate during March 2020 for persons aged 15 to 24 years was 10.4 per cent the rate for those between 25 and 74 years stood at 2.6 per cent. In the same month, the seasonally adjusted unemployment rate for males was 3.1 percent down 0.1 percent when compared with the previous month.  The rate for females stood at 4.1 percent increasing by 0.4 percent when compared to February 2020.

Antonella Mercieca

Client Relationship Manager




May 8th, 2020

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