“Bitcoin…”

Bitcoin tumbled below the $40,000 mark on Wednesday hitting a 3.5 month low.  It dragged down with it other digital coins after China imposed fresh curbs on transactions involving cryptocurrencies.  Whilst being already under pressure from a series of tweets from Tesla’s CEO Elon Musk, the news from China sent it as low as $38,514 for a 9% drop. Bitcoin is now down 40% from a record high of $64,895 hit on the 14^th April.  It is also heading for its monthly decline since November 2018.  The move in Bitcoin hit other crypto assets too, with Ether, the coin linked to the Ethereum blockchain network, dropping 15% to $2,875.36, while Dogecoin tumbled 18%, according to market tracker Cingecko.  The selling was exacerbated by China’s announcement banning financial institutions and payment companies from providing services related to cryptocurrency transactions.  It also warned investors against speculative crypto trading.  The recent selloff in the Bitcoin and other digital currencies has taken market capitalisation of all cryptocurrencies back under the $2 trillion, down from the recent $2.5 trillion record.  Smaller rival Ether was up 12% at $2,744 after its 28% tumble.  These bounces came after prominent crypto backers, such as Ark Invest’s Cathie Wood and Tesla’s Elon Musk indicated their support on Wednesday.  Whilst Wood said in an interview with Bloomberg that she was still sticking to her $500,000 forecast, Musk reiterated that Tesla was holding on to its Bitcoin investment.  Wednesday’s declines in both digital assets were one of their biggest daily percentage moves in more than a year, with investors rushing to exit trades that until recently were outperforming traditional markets such as stocks and bonds.   

Eurozone Inflation

Eurozone inflation accelerated as expected in April, amid a sharp rise in the costs of energy and services, said the European Union’s Statistics Office Eurostat on Wednesday.  Eurostat also said that Consumer Prices in 19 countries sharing the Euro rose 0.6% month-on-month for a 1.6% year-on-year increase up from 1.3% year-on-year in March.  The ECB wants to see inflation even closer to 2% over the medium term but warned that the faster growth is mainly due to comparison effects with very low energy prices a year earlier. Prices of energy such as oil and gas, climbed 10.4 year-on-year in April adding 0.96% to the final inflation figure. Meanwhile, costs of unprocessed food, which is another volatile component dropped 0.3% year-on-year in April.  Without these two changing factors or what the ECB calls core inflation, prices went up 0.5% from the previous month and 0.8% from a year earlier, slowing from the 1% annual growth in March.  The prices of services which account for almost two thirds of the Eurozone Gross Domestic Product, went up 0.9% year-on-year in April, adding 0.37% to the final inflation number, continuing a strong trend since the start of the year.

Eurozone Recession

The EU’s Statistics Office, Eurostat stated that GDP in the 19 countries sharing the Euro dropped 0.6% quarter on quarter in the January-March period for a 1.8% year-on-year drop.  The economies of Germany, Italy, Spain and the Netherlands all contracted while France grew by 0.4% quarter-on quarter.  Eurostat also said that employment fell 0.3% on the quarter in the first three months of 2021 after a 0.4% quarterly rise in the previous quarter.  Meanwhile in a separate release, Eurostat showed imports from Britain were down by more than a third in the first quarter of 2021 following the British exit from the EU single market.  The EU’s trades surplus with Britain rose to €35.8 billion as exports were down by a more modest 14.3%.  The decline in exports and imports was most marked in January and less acute in March.  Eurostat further added that Eurozone’s unadjusted trade surplus with the rest of the world fell to €15.8 billion in March from €29.9 billion in March 2020.  Adjusted for seasonal swings, the Eurozone trade surplus with the rest of the world was €13 billion in March from Eur 23.1 billion in February as exports dropped 0.3% on the month while imports rose 5.6%. 

German Exports to the US and China

German exports to the US and China jumped in comparison to previous years in April, according to data on Tuesday, suggested that strong demand from abroad is helping Europe’s largest economy recover from last year’s coronavirus slump. Exports to the US, Germany’s biggest sales market outside the European Union soared by 60.4% year-on-year in April to €10.1 billion, showed preliminary trade figures from the Statistics Office.  Exports to China which is Germany’s second largest export destination outside the EU increased by 16.3% to €8.4 billion, added the Office.  Meanwhile exports to Britain jumped by 58.6% on the year to €5.1 billion.  Overall exports to non-EU Countries rose by 35.6% on the year to €50.8 billion.  The Statistics Office said that the year-on-year figures for April were strongly impacted by the coronavirus wave in 2020 which had pushed down exports compared to April 2019.  Exports to non-EU member states, that is third countries, accounted for around 47% of overall exports.  This shows that more than half of Germany’s exports still go to clients within the EU despite Britain’s exit.     

UK Inflation

UK inflation increased by more than double in April this year with Britain’s Consumer Index rising by 1.5% in April.  This was a sharp jump from the 0.7% rise seen in March and marked the highest CPI reading since March 2020, driven by higher power and fuel bills as global oil prices climbed from their pandemic lows of 2020.  April’s inflation reading was still below the Bank of England’s 2% target.   This should give the Central Bank confidence that it will not have to pull the plug early on the Trillion-Dollar Bond-Purchasing Programme it rolled out to support the British economy through the crisis.  The main factors pushing the British inflation up in April were higher electricity and gas bills, which jumped by more than 9% in April and increases in clothing and footwear, along with the cost of petrol.  The Office for National Statistics further added that core inflation which excludes energy prices and other volatile items, increased less sharply than the headline figure, rising to 1.3% in the 12 months to April from 1.1% in March. 

Foreigners remain Net Buyers of Asian Bonds

Foreign investors remained net buyers of Asian bonds for the eleventh consecutive month in April.  Overseas investors bought a net $6.37 billion worth of Asian bonds last month, showed data from regulatory authorities and bond market associations.  Inflows dropped slightly from March as investors turned cautious due to the rising COVID-19 cases in the region.  Indonesian bonds attracted inflows for the first time in three months, with $914 million, as its factory activity accelerated last month.  South Korean bonds received $3 billion worth of inflows last month, Malaysian and Thai bonds received $1.5 billion and $926 million, respectively. Cross border investors sold a net $18 million worth of Indian bonds last month, marking a fourth straight month of outflows.  According to analysts the outlook for bond inflows depends on the pace of vaccine distribution and how fast the region recovers from the pandemic.

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits dropped further below 500,000 last week, suggesting that job growth picked up this month.  However, companies are still desperate for workers.  Initial claims for state unemployment benefits totalled a seasonally adjusted 444,000 for the week ended 15^th May, compared to 478,000 in the prior week, declared the Labour Department on Thursday.  This was the lowest since mid-March 2020. 

FED Minutes

According to the minutes of the FED’s April meeting a number of FED officials appeared ready to consider changes to Monetary Policy based on continued strong economic recovery.  The minutes said, “A number of participants suggested that if the economy continued to make rapid progress towards the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”  Data may have already changed in the landscape.  Although inflation ticked higher, a concern cited in the minutes, the addition of just 266,000 jobs last month provided no further progress towards the FED’s efforts to support the economy close to full employment.  FED officials pledged to keep their ultra-loose, crisis-fighting policies in place, betting that the unexpected surge in Consumer Prices last month stems from temporary forces that will ease on their own, and that the US job market needs far more time to get people back to work.  “Many” participants noted the trouble businesses reported in attracting workers despite the high levels of unemployment, a fact FED officials say may be driven by a wave of retirements, ongoing fears of the virus, childcare problems and the ongoing flow of unemployment benefits.  The minutes further stated that “many participants noted that these factors were depressing the labour participation rate, relative to its pre-pandemic level.” Earlier on Wednesday, St Louis Fed President James Bullard said that with the job market still far short of the FED’s goals and the coronavirus still killing hundreds a day in the US, “it is too soon to open the taper discussion”.  He further added that only after the health crisis is more fully controlled should the FED consider curbing its support for the economy. 

Market Roundup

European stocks moved higher on Monday, after a sharp recovery late last week on optimism about the European economic reopening that offset the underwhelming China data.  The Pan European STOXX 600 index  .STOXX climbed 0.04%. 

European stocks neared a record high on Tuesday, amid optimism around several countries easing economic restrictions, falling unemployment rate in the UK and strong earnings reports from companies.  On Tuesday, CAC 40 declined by 0.21% reaching 6,353.67, DAX dropped 0.07% reaching 15,386.58 and FTSE 100 increased 0.02% closing at 7,034.24. 

European stocks headed lower on Wednesday, tracking the weakness on Wall Street as investors grew wary of rising inflationary pressures increasing the chances of an early tightening of Monetary Policy.  Eurozone stocks felt the Euro’s pressure as it touched a four-month high, making exports more expensive. A retreat in commodity prices made miners, oil and gas stocks among the top losers in Europe. The volatility gauge of European equities rose to its highest in almost a week. Meanwhile, European banks posted the smallest declines, helped by rising Eurozone Government Bond Yields.    Investors are worried that the price rises may last for prolonged period, pushing Central Banks to counter it with policy tightening.  European Central Bank Chief Christine Lagarde said on Tuesday, that it was “essential that monetary and fiscal support are not withdrawn too soon”. 

After the release of the minutes US stocks dropped further into negative territory, while the US 10- year Treasury Yield rose to 1.683%. 

Gains in financials and industrial stocks helped the FTSE 100 bounce back on Thursday, from its worst daily performance in a week.  The blue-chip index climbed 0.4% with home improvement retailer Kingfisher adding 2.3% after it raised its first-half profit outlook.  The index was further boosted by industrial stocks.  European index climbed on Thursday, with the CAC 40 increased by 1.29% to 6,343.58 and DAX reached 15,370.26 with a 1.7% increase.  The S&P 500 climbed 1.06% reaching the 4159.12 level, while the NASDAQ and the Dow climbed 1.94% and 0.55% to reach 13,494.09 and 34,084.15, respectively. 

Currency Roundup

The weakness in the Dollar saw the British Pound rising to a three-month high on Tuesday, crossing the key $1.42 level.  The factors contributing to such an increase are the market optimism about the UK economic recovery which is also supported by news that UK unemployment fell in the first quarter.  The Dollar continued with its slide touching its lowest level since late February, amid increased risk appetite that lured investors away from the safe-haven greenback.  Meanwhile against the Euro Sterling was down 0.1% reaching 86.03 pence per Euro. 

US Dollar slipped on Thursday, however, remained well above the three months lows hit overnight after minutes from the Federal Reserve meeting showed there was more talk of it tapering its bond purchases than investors had expected.  In view that the FED minutes showed that policymakers discussed reducing the pace of asset purchases would be appropriate “at some point” if the US economy continues to gain momentum, markets were surprised.  This led investors to unwind some of their short Dollar positions and push the Dollar higher as they believed the FED would remain on hold for the foreseeable futures despite strong data.  The Dollar’s gains fizzled partially in London, trading with the greenback declining against most of its peers.  The biggest beneficiary of the weak Dollar trend was the Aussie Dollar which also received a boost from robust April jobs data. Meanwhile the Euro moved 0.2% higher at $1.22 after having slipped 0.4% in the previous session and off a three-month high of $1.2245. 

Gold

Gold prices eased on Wednesday, as the US Dollar ticked higher, with investors waiting for April’s FED policy meeting minutes to gauge its stance on interest rates in the wake of rising inflation concerns.  After rising for four sessions to its highest since the 29^th January at $1,874.8 per ounce on Tuesday, Spot Gold fell 0.2% to $1,864.51 whilst US Gold Futures dipped 0.1% to $1,865.20.  Meanwhile on Thursday, Gold prices gained amid the growing US inflationary pressure.  The gains were however curbed as the Dollar rebounded and US Treasury Yields rose after Federal Reserve policymakers hinted at a possible shift in future policy.  Spot Gold was up 0.2% at $1,873 per ounce while US Gold Futures eased 0.3% to $1,875.20. 

Oil

OPEC+ compliance with oil production cuts in April reached 113% down from 115% March’s level according to two sources from the producers group disclosing to Reuters.  Oil prices on Thursday, continued with the three-day losses in the previous sessions after diplomats said progress was made towards a deal to lift sanctions or Iran, which could boost Crude supply.  Brent Crude was down 0.5% at $66.27 a barrel while West Texas Intermediate US Oil lost 0.3% to $63.13 a barrel.  Both contracts dropped about 3% in the previous session.  The Iranian President Hassan Rouhani said in over a speech on television on Thursday, that sanctions on Oil, shipping, petrochemicals, insurance and the Central Bank had been dealt with in the talks.  However, European diplomats said success was not guaranteed and very difficult issues remained, while a senior Iranian official contradicted the president.  Concerns about the demand outlook in Asia also dragged prices down.  Almost two-thirds of people tested in India are exposed to the virus.  Speculation that the FED might at some point start to tighten policy weight on the outlook for economic growth has prompted some investors to reduce exposure to oil and other commodities. 

Malta:  Harmonised Index of Consumer Prices (HICP) – April 2021

A press release dated 19^th May showed that in April 2021, the annual rate of inflation as measured by the HICP remained at a constant rate of 0.1%.  The largest upward impact on annual inflation was measured in the Education Index (+.29%), while the largest downward impact was recorded in the Restaurants and hotels Index (-0.62%).  The HICP measures monthly prices changes in the cost of purchasing a representative basket of consumer goods and services.  The HICP is calculated according to rules specified in a series of European Union regulations that were developed by Eurostat in conjunction with the EU member states.  The HICP is used to compare inflation across the EU.

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