“China’s Central Bank …”

China’s Central Bank

In order to limit the impact from the Coronavirus, on Monday, China’s Central Bank lowered borrowing costs for the medium-term loans paving the way for a reduction to the lending benchmark rate on Thursday.  In fact on Thursday China cut the benchmark lending rate, as expected, as authorities aim to lower financing costs for businesses and support the economy.  The epidemic has caused widespread disruption to businesses and factory activity in China.  The one-year loan prime rate (LPR), the new benchmark lending gauge, which was introduced in August, was lowered by 10 basis points to 4.05 percent from 4.15 percent (the previous monthly fixing). The LPR is a lending reference rate set monthly by 18 banks.  The People’s Bank of China (PBOC) revamped the mechanism to price LPR in August 2019, loosely pegging to the medium-term lending facility rate.   Meanwhile, the five-year LPR was lowered by 5 basis points at 4.75 percent from 4.8 percent.  The People’s Bank of China has pledged to use tools such as targeted reserve requirement cuts, relending and rediscount, to support key sectors that have been affected by the outbreak.  It has already injected over $200 billion in liquidity in order to help lower financing cost.

China And US Trade

After the Phase 1 trade deal between the US and China took effect on 14 February, on Tuesday China announced that it will grant exemptions on retaliatory duties imposed against 696 US goods, the most substantial tariff relief offered so far.  China has committed to boost its purchases of goods and services from the United States by $200 billion over the two years as part of the agreement.  It also agreed to roll back some additional tariffs on US imports after the deal was signed.  The US goods that are eligible for tariff exemptions include key agricultural and energy products such as pork, beef, soybeans and liquefied natural gas and crude oil.  These were subject to the extra tariffs imposed during the escalation of the bilateral trade dispute.

Federal Reserve Meeting Minutes

The minutes from the January Policy meeting showed that Senior Federal Reserve staff proposed ending longer-term loans to banks after April as part of a broader blueprint laying out how the central bank could scale back the support provided to money markets.  The proposal, which was welcomed by policymakers, explained how the FED could gradually reduce interventions in the market for Repos (Repurchase Agreements) and slow its balance sheet expansion.  The FED begun its repo operations in mid-September amid a cash shortage that led to short-term borrowing costs climbing and caused the Federal Funds rate to trade outside of the Fed’s target rate.  Meanwhile, the FED is also purchasing $60 billion a month in short-term Treasury bills to raise the amount of permanent reserves in the banking system to a level where interventions are no longer needed.  The minutes further showed that the FED could continue reducing the scale of its repo operations, with a plan to potentially phase out longer-term repo operations after April.

Oil

Oil fell more than 2 percent towards $56 a barrel on Tuesday amid pressures over the impact of oil demand from the coronavirus outbreak in China and a lack of further action by OPEC and its allies to support the market.  Meanwhile Benchmark Brent oil prices rose for a seventh consecutive day after demand worries eased with the slowing of new coronavirus cases in China.  Supply was cut down by a move by the US to cut more Venezuelan crude from the market.

Gold

Gold prices rose to a two-week high on Tuesday, spurred by demand for safe-havens after Apple’s Iphone Revenues warned about the fallout from the epidemic hitting China.  Whilst spot gold was up 0.4 percent at $1,586.93 per ounce, earlier in the session, prices touched their highest since 3^rd February at $1,587.40.  Gold also climbed towards a seven-year peak on Wednesday reaching $1,600 as concerns over the global economic impact of the coronavirus increased.  Spot gold was little changed at $1,603.20 per ounce after surging to its highest since 8^th January at $1,605.26 earlier.

PMI From France And Germany

Business activity in the eurozone was picked up by more than expected this month, according to a business survey released on Friday.  IHS Markit’s Eurozone Composite Flash Purchasing Managers’ Index (PMI) which is considered a good gauge of economic health, rose to 51.6 in February from January’s reading of 51.3.  Anything above 50 indicates growth.  Meanwhile, another survey from Germany showed that the private sector in Germany expanded steadily in February.  Growth in services activity slowed but made up for an easing recession in manufacturing.  France’s business activity expanded faster than forecast.  As services rebounded following transport strikes at the end of last year that helped to offset a continued slump in manufacturing.  Britain’s PMI suggested the economy looked on track to grow around 0.2 percent in quarterly terms after it slowed last year.  Demand has remained relatively strong in the EU, suggesting that there will be no deterioration next month.  The eurozone new business index held at January’s seven-month high of 51.3.  IHS Markit said that the survey was consistent with GDP growth of 0.2 percent.

Germany And ZEW Research Institute

In its monthly survey the ZEW research institute said that its monthly survey showed economic sentiment among investors fell to 8.7 from 26.7 in January.  The survey further showed that the mood among German investors deteriorated far more than expected in February amid worries that China’s coronavirus outbreak would dampen world trade and deepen the manufacturing recession in Germany.  Meanwhile a separate gauge measuring investors’ assessment of the economy’s current conditions decreased to -15.7 from -9.5.  In the fourth quarter German’s economy stagnated in the fourth quarter due to weaker private consumption and state spending, renewing fears of recession.  Meanwhile, the president of ZEW institute said that, “the end of 2019 and the beginning of 2020 saw a worse than expected development of the German economy.” Some economists are concerned that the coronavirus which started in China and is impacting both the global supply chain and the demand from China, could result in weaker German growth in the first quarter of this year.

OECD On Quality Of Corporate Debt

Since the 2008 financial crisis the build-up of corporate bonds has hit unprecedented levels and created a global stock of outstanding debt with a lower rating quality and higher payback requirements compared with past cycles said the OECD (the Paris Based Organisation for Economic Co-operation and Development).  In its report the OECD said that the global outstanding stock of non-financial corporate bonds reached an all-time high of $13.5 trillion in 2019.  OECD further said that non-financial corporations borrowed record amounts in 2019 after a return to more expansionary monetary policies early last year.  It further added that the size and quality of the corporate bond markets should be factored in when policymakers considered different scenarios for monetary policy.

Apple’s Revenue

Apple warned on Monday that it was unlikely to meet its March quarter sales forecast amid China’s coronavirus epidemic.  Manufacturing facilities in China that produce Apple’s iPhone and other electronics started to reopen, but they are ramping up more slowly than expected, said Apple.  This means that there will be fewer iPhones available for sale around the world making Apple one of the largest effected by the outbreak.  Whilst in late January, Apple forecast $63 billion to $67 billion in revenue for the quarter ending in March and said it was a wider than normal range due to the uncertainty created by the virus, it did not offer a new revenue estimate or a profit forecast on Monday.  Meanwhile the shares of its Asian suppliers fell on the news, with Samsung Electronics losing 2.4 percent, Taiwan Semiconductor Manufacturing down 1.8 percent and SK Hynix dropping 3.3 percent.  Apple said that it will reopen China stores “as steadily and safely as we can,” while global supplies of iphones will be limited as manufacturers work toward operating plants at full capacity.  It plans to provide more further information in April upon the release of first quarter results.

Currency Roundup

The euro weakened on Tuesday dropping to the low level reached on Monday, before the release of a German survey.  After the release of the German survey that showed slump in investor confidence the euro extended its losses reaching a three-year low against the dollar.  So far this year euro lost 3.4 percent of its value against the US dollar, after weak manufacturing and gross domestic product data from Germany that indicated that Europe’s economy is weaker than originally expected whilst the US is more robust.  Poor economic data in the euro area raised concerns that the eurozone monetary policy will have to remain looser for longer.   On Tuesday China’s yuan declined close to key 7-per dollar level as concerns over the virus has put pressure on the local currency.  The number of new coronavirus in mainland China dropped below 2,000 on Tuesday for the first time since January, however experts said it is still too early to say the outbreak is being contained.  The safe-haven yen eased slightly on Wednesday amid signs that China was looking to keep away the economic threats from the coronavirus.    On Friday after the release of the IHS Markit’s Euro Zone Flash Purchasing Managers’ Index (PMI) the euro nudged up against the dollar and Germany’s 10-year government bond yield rebounded from four-month lows after the stronger than expected numbers.

Markets Wrap

On Monday European shares hit a record high closing amid a rally in Italian banks while fresh attempts by China to limit the economic impact of the coronavirus outbreak lifted investor’s sentiment. Although there was a US holiday, the pan-European STOXX 600 index rose 0.3 percent and trade sensitive German stocks hit all-time highs as Beijing stepped up stimulus measures.  Meanwhile, automobile stocks were the best performing European sector. On Tuesday European shares dropped amid a revenue warning from Apple Inc that sent shockwaves through the tech sector.  Other China-exposed sectors in Europe, such as automobile and basic resources dropped more than 1 percent each.  The two are dependent on Chinese demand for their goods.   HSBC Holdings plc fell 4.7 percent after it said it would shed $100 billion in assets and cut 35,000 jobs over three years in a drastic restructuring.  Amongst the few gainers were Defensive sectors utilities and real estate. On Wednesday US Treasury yields edged higher as a report that China will take more steps to boost its economy raised risk taking.  Also, stocks were helped after US economic data beat economist’s expectations.  Bloomberg News reported that Beijing was considering cash injections or mergers to bail out airlines hit by the virus, hence increasing risk appetite, sending stocks higher and reducing demand for safe-haven bonds.  Investors are focusing on the spread of the virus as they weigh how it will affect the global economy.  Also, on Wednesday the S&P 500 and the NASDAQ hit fresh highs on signs of slowing coronavirus infections and expectations that China will take more measures to support its economy.  European shares also rose on Wednesday supported by a weaker euro, and a decline in the reported number of cases of the virus on hopes that the impact on global supply chain will be short-lived.  Furthermore, hopes of more stimulus from Beijing helped a recovery from fears of a sustained hit to global supply and demand.  European shares on Thursday eased from record highs reached after some disappointing earnings added to fears from the spread of coronavirus as research suggested it was more contagious than previously thought.  Whilst recent figures pointed to a slowdown in the outbreak in China, new cases in South Korea have rattled the global equity markets.

Direct Investment in Malta and Abroad – January to June 2019

During the first six months of 2019, foreign direct investment flows were estimated to be EUR 1.7 billion during the first six months of 2019, a decrease of EUR 166.3 million over the corresponding period in 2018.  During the first six months of 2019, direct investment flows abroad totalled EUR 3.2 billion, an increase of EUR 51.7 million over the amount registered in the previous year, mainly attributed to changes in equity capital.

Malta:  Registered Unemployment – January 2020

In January the number of persons registering for work stood at 1,691 decreasing by 5.8 percent when compared to the corresponding month in 2019.  This data was released in a press release by the National Statistics Office (data provided by Jobsplus for January 2020).  The largest share of males and females on the unemployment register sought occupations as clerical support workers with 20.8 percent and 39.2 percent respectively.

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