“Brexit…”

Britain and the EU have just over two weeks left to negotiate a deal covering nearly $1 trillion in annual trade before Britain loses the zero-tariff zero-quota access to the block’s single market on 31 December. The European Commission on Monday said that the European Union is “fully dedicated” to securing a post-Brexit trade deal before Britain’s transition out of the block ends on 31 December. On Wednesday the EU chief executive said she could not say if there would be a trade deal with Britain but there had been progress and the next few days would be critical.  Ursula von der Leyen said discussions on access to British fishing waters for EU vessels were “still very difficult” but negotiations had moved forward on the other most contentious elements guarantees of fair competition for companies.  On Thursday Britain and the European Union reached a pessimistic tone in the trade talks with a spokesman for Prime Minister Boris Johnson stating it was “very likely” there would be no agreement unless the bloc changed its position “substantially”. 

UK Jobless Rate

Britain’s jobless rate increased in the three months to October and redundancies reached a record high as companies were hit by new coronavirus restrictions.  Official data showed that unemployment rate reached 4.9% up from 4.8% in the three months to September, its highest in more than four years.  The Office for National Statistics said that the number of redundancies reached a record high of 370,000 in the August to October period although it decreased in October alone.  In view of the second wave of COVID-19 Finance Minister Rishi Sunak was forced to extend the scheme until the end of March 2021. Meanwhile the Bank of England has forecast that the unemployment rate is likely to peak at nearly 8% in the second quarter of 2021. 

China’s Factory Recovery

China’s factory output grew at the fastest pace in 20 months in November, as revived consumer spending and a gradual easing of the COVID-19 restrictions in major trading partners boosted the demand for the country’s manufactured products.  Data from the National Statistics Bureau showed on Tuesday that industrial output growth quickened to 7% in November from a year earlier.  China’s economy has undergone an impressive recovery mainly by robust exports that have boosted the nation’s factories again.  Auto sales grew 11.8%, sales of household appliances grew 5.1% in November and Communications equipment jumped 43.6%.  Meanwhile, Fixed-asset investment increased 2.6% in January-November from the same period last year, faster than a 1.8% increase in the first 10 months of 2020.  Private sector fixed-asset investment that accounts for 60% of total investment climbed 0.2% in January- November compared to 0.7% decline in the first 10 months of the year.  China’s economic recovery seems to be accelerating in the fourth quarter, driven by stronger demand, credit growth and stimulus measures. 

The FED

On Wednesday the Federal Reserve vowed to keep injecting cash into the financial markets to support the economic recovery.  Subsequent to a policy meeting that took into account the short-term risks to the economy and the new promise of a coronavirus vaccine, FED Chair Jerome Powell acknowledged that the FED’s tools are not well-suited to tackle the most important needs being faced by households and businesses today.  Powell said that unemployed households or businesses which are struggling are more in need of immediate cash.  Top lawyers in Congress are in talks over a new $900 billion pandemic relief bill.  The most relevant period for the FED is the middle of next year when Powell said the FED is hopeful that the country may approach widespread immunity from the coronavirus and see economic activity surge.  With interest rates at zero levels for years to come, the FED added a more explicit promise to continue the current bond buying program until there is “substantial further progress” in restoring full employment and hitting the 2% inflation rate.  Powell told reporters that despite some progress in the economic recovery and unemployment rate, the pace of improvement is slowing and the share of people who are either working or looking for work remains below pre-pandemic levels. 

US Retail Sales

The Commerce Department reported that US retail sales fell more than expected in November adding to growing signs of a slowdown in the economic recovery.  Data showed that US retail sales dropped 1.1% last month from October, as new coronavirus infection cases and decreasing household income weighed on spending. 

US Weekly Jobless Claims

The number of Americans that file first-time claims for jobless benefits unexpectedly rose last week amid a wave of new COVID-19 infections that impacted business operations.  This offered evidence that the economic recovery from the pandemic is losing momentum.  Data from the manufacturing activity on Thursday also underscored the sharp slowdown in new orders and job growth.  Meanwhile the housing market remained resilient due to low mortgage rates.  Jobless claims are way above their 665,000 peak during the 2007-2009 Great Recession although they have dropped from a record 6.867 million in March. 

Japan’s Stimulus

The latest Japanese economic stimulus to cushion the economy from the impact of the pandemic is likely to boost the economy most strongly next fiscal year, while it underscored the need to achieve economic revival and fiscal reform, said key ministers.  The remarks by the minister were made after the Prime Minister’s cabinet approved a third supplementary budget on Tuesday to fund the $708 billion stimulus package to help the economy recover from its COVID-19 impact.  Although Japan holds the world’s heaviest public debt burden, more than twice of the size of the economy, Japanese government had to put off fiscal reforms.  The stimulus package is expected to boost gross domestic product by around 0.5% in the current fiscal year through March, whilst 2021 and 2022 onwards 2.5% and 0.6% respectively, said the Economy Minister on Tuesday.   

Bank of Japan

The Bank of Japan will tap $6 billion in cash from the government account in a rare arrangement to ensure that it has enough ammunition to fight any market disruptions caused by a recent resurgence in coronavirus infection.  Under this arrangement, which was announced on Wednesday, the central bank will buy dollar cash from the Ministry of Finance (MOF) any time through to the end of March next year at the prevailing market exchange rate at the time.  This is the first time the BOJ will buy dollars outright from the MOF.  This underscores the bank’s caution over the risk of renewed dollar funding strains heading into the end of the year.   

Bitcoin

On Thursday Bitcoin reached a fresh all-time high after rising 6.5% to $22,765, a day after it hit the $20,000 mark for the first time.  This year the highest profile crypto-currency has gained more than 175% amid demand from larger investors who are attracted to its potential for quick gains and see its inflation-hedging attributes.   

Market Wrap

On Monday the S&P 500 closed down 0.4%, the NASDAQ Composite gained 0.5% and the Dow Jones Industrial Average hit a record high but dropped back 0.6% for the day.  Meanwhile, deaths in the UK crossed 300,000 on Monday as the hardest hit nation initiated its first vaccine inoculations.  In London COVID-19 restrictions were imposed and Canada have also begun to administer shots. Most Asian markets such as the MSCI’ index of Asia-Pacific shares outside Japan dropped 0.6% to 637.8, the lowest in more than a week after it hit a string of record highs in recent weeks.    

Bond yields on Monday rose after an extension of trade talks between Britain and the European Union that eased the fears from a messy departure between the two.   Germany’s benchmark 10-year bond yield dipped to -0.627% near the recent one-month lows of around -0.64%.  In southern Europe, Spain’s 10-year bond yield touched a new record low of -0.004% while Italy’s 10-year bond yield was lower at 0.5% keeping record lows in sight. This left the gap with the German Bund yields around 112 basis points.  The renewed uncertainty about the economic outlook underpinned bond markets across the euro area just days after the ECB engaged in fresh stimulus to boost up the economy from the coronavirus shock.  

Asian stocks retreated on Tuesday over worries about increasing deaths from COVID-19 and lockdowns that overshadowed the optimism about the roll-out coronavirus vaccinations a day after indices hit record highs.  Markets did not react much to China’s industrial output which expanded for eight-straight months as an economic recovery gathered pace.  On Tuesday US congressional leaders reported substantial progress towards a spending bill. Technology shares pushed Wall Street higher on Tuesday with the NASDAQ ending at a record high, as investors viewed the sector as more resilient to the pandemic.  Meanwhile Eurozone bond yields dropped on Tuesday amid concerns about the rising COVID-19 cases in major economies that hinder the return to normality. 

On Wednesday Wall Street remained mixed with the NASDAQ hitting record highs as investors waited for the potential of a fiscal economic stimulus package and after the FED repeated its pledge to keep its benchmark interest rate to zero.  The S&P cuts gains after the FED promised to keep funnelling cash into the financial markets to fight the recession even after policymakers’ outlook for next year improved following the initial rollout of the coronavirus vaccine.  The Dow also dropped on Wednesday, on mounted worries about the economic impact of the COVID-19 pandemic that offset the optimism over the stimulus package.  Meanwhile investors awaited the FED’s outlook on the economy later in the day.    

On Thursday European shares remained at 10-month highs amid hopes of more stimulus in the US and the potential COVID-19 vaccine rollouts in Europe that strengthened the case for global economic recovery.  Germany’s DAX climbed 1% to hit its highest since February, while the pan-European STOXX 600 index climbed 0.5%.  Both extended gains to a fourth straight session. 

European Shares moved lower on Friday amid doubts over a post-Brexit trade deal and fresh US-China tensions.  Travel and leisure stocks were the biggest decliners in early European trading.  The German DAX and France CAC 40 lost almost about 0.2% each. 

Currency Roundup

The previous Friday sterling dropped to a low of $1.3135 with implied volatility surging to its highest since March, when British Prime Minister Boris Johnson said that a no-deal was “very very likely”.  On Monday it rebounded to a high $1.3444 as market participants were relieved that negotiators agreed to “go the extra mile” to try to reach a deal in the coming days.  The EU’s chief Brexit negotiator said a deal was still possible.  Meanwhile on Monday the dollar sunk as low as 90.419 a level unseen since April 2018.  The dollar has weakened by hopes that US lawmakers can agree $1.4 trillion in spending.   The pound stabilised on Tuesday after a sharp rebound on Monday as market participants grew more optimistic about the chances of a Brexit deal.  However, volatility gauges signalled further price swings as the deadline of 31 December approaches.  On Tuesday the euro held ground hovering near a 2 ½ year peak as investors focused on the likelihood of more US stimulus that would weigh on the dollar.  The euro has rocketed 4% since early November to its highest level since April 2018, partly due to the broad-based selling of the US dollar.  Furthermore, investors bet on vast European recovery fund package will lift the region’s economies.  

On Wednesday the dollar declined to near 2 1/2year lows as progress towards a massive US government spending bill and COVID-19 measures stimulated risk appetite lowering the demand for the safest assets.  Sterling held on to more than 1% of gains made on Tuesday after a report that a difficult Brexit trade deal may now be close although British Prime Minister Boris Johnson repeated that the most likely outcome of the talks was a no deal.  The pound reached $1.3463 following an 0.9% jump in the previous session.    

On Thursday the dollar reached a two-year low on monetary support and hopes of fiscal stimulus in the US.  Meanwhile the euro and currencies in Asia hit multi-year highs. 

Oil

Oil prices rose on Tuesday as investors focused on the rollout of the COVID-19 vaccines.  Brent crude settled at $50.76 rising 0.9% whilst US West Texas Intermediate settled at $47.6 a barrel gaining 1.3%.   The International Energy Agency said on Tuesday that any impact of vaccines on demand is still several months away, while OPEC said on Monday that oil demand will rise more slowly than expected.  The latest snapshot of US oil supplies showed crude oil stocks unexpectedly increased last week, according to the American Petroleum Institute, an industry group.  Crude inventories increased by 2 million barrels in the week to 11 December to about 495 million barrels.  Oil climbed on Thursday and touched a nine-month high as traders were optimistic about the progress towards a US fiscal stimulus deal and the record-breaking refining demand in China and India.  US lawmakers became closer to an agreement on a $900 billion virus relief spending package on Wednesday. 

Malta:  Industrial Producer Price Indices – November 2020

In comparison to November 2019, the industrial producer price index registered a decrease of 0.5%.  Intermediate goods dropped by 1.98% while consumer goods and capital goods increased by 0.86% and 0.55% respectively.  The energy sector registered no price change.  Industrial producer prices for the domestic market increased by 1.72%. Whilst price rises were recorded in consumer goods (5.28%), intermediate goods and capital goods increased 0.42% and 0.22% respectively. Meanwhile, during November 2020, the industrial producer price index decreased by 0.13% over the previous

month. Price drops were registered in intermediate goods (0.24%) and consumer goods (0.09%).

Malta:  Harmonised Index of Consumer Prices – November 2020

In November 2020 the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 0.2% (October: 0.6%).  The largest upward impact on annual inflation was measured by the Food and Non-alcoholic Beverages Index, while the largest downward impact was recorded in the Clothing and Footwear Index.   The HICP measures the monthly price 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 the inflation rate across the European Union. 

‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’