“Christine Lagarde at the ECB Annual Symposium…”

Christine Lagarde kicked off the ECB’s annual symposium held virtually at which the world’s top central bankers were due to discuss why monetary policy is not working as it used to and what role they might play.  The European Central bank will be focusing on more emergency bond purchases and cheap loans for banks when it puts together its new stimulus package next month in its help towards the eurozone economy, said ECB President Christine Lagarde on Wednesday.  She further added that inflation in the 19-country bloc was likely to remain negative for longer than expected amid the second wave of the COVID-19 outbreak.  The ECB’s job was to keep the borrowing costs sufficiently low for households, firms and governments and support the banking sector to prevent a credit crunch, she said, with reference to the bank’s Pandemic Emergency Purchase Programme and Targeted Longer-Term Refinancing Operations as its instruments of choice.  In relation to the investor optimism about a new vaccine after Pfizer Inc said on Monday its experimental COVID-19 vaccine was more than 90% effective based on initial trial results she further added, “ While the latest news on the  vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved”.  She also said that, “While all options are on the table, the PEPP and TLTROs have proven their effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves.”  “They are likely to remain the main tools for adjusting our monetary policy”. 

Brexit

On Monday Prime Minister Boris Johnson suffered a heavy defeat in parliament’s upper chamber over proposed law that would allow him to breach Britain’ EU exit treaty.  The internal Market Bill is designed to protect trade between Britain’s four nations after Brexit.  It includes clauses ministers say are needed to protect Northern Ireland’s delicate status as part of the United Kingdom but would also break international law in a “specific and limited” way.  The House of Lords voted to strip those clauses from the bill leading to a series of defeats for the ruling Conservative Party.  The government does not have a majority in the Lords and even some high-profile Conservative members opposed the clauses.  According to Johnson the clauses are there to act as a safety net in case ongoing negotiations with the EU fail to work out how goods can flow between Britain, province of Northern Ireland, and across the open border with Ireland.

Market Wrap

Monday

European stock index futures jumped to a three-week high on Monday amid the victory by Joe Biden in the US election that raised hopes of better trade ties between Washington and Europe.  German DAX futures and London’s FTSE futures gained 1.6% and 1.3% respectively.  The main US indices hit new peaks on Monday as data from Pfizer Inc late-stage COVID-19 vaccine trial drove bets of a swift economic recovery next year. Pfizer Inc announced on Monday that its COVID-19 vaccine candidate developed with German partner BioNTech BNTX.O showed a 90% success rate in preventing infection during trials.  Whilst hailing the progress on the vaccine, Biden urged caution stating it would be “many more months” before the widespread vaccine is available.    With the news about the vaccine and the election victory by Joe Biden that raised hopes of a more stable US trade policy, European shares jumped to an eight-month high.  The pan-European STOXX 600 jumped nearly 4% and recorded its best day since late March.  Travel and leisure stocks which have been the hardest hit by the pandemic were among the best performing sectors adding 7% to hit an eight-month high.  BioNtech shares climbed more than 15% while Germany’s main stock index increased 5%.  The index was boosted by positive trade data for September.

Tuesday

The S&P 500 dropped on Tuesday as the excitement over indications of a first successful late-stage COVID-19 vaccine trial faded.  Investors continued to dispose of the big tech companies that have benefited the most from the pandemic.  Stocks such as Netflix, Amazon.com Inc, Facebook Inc and Microsoft Corp that have done well amid this year’s remote working and moved Wall Street to new high levels extending Monday’s losses and pulling the tech-heavy NASDAQ down by about 1%.  Meanwhile investors moved from tech, communication services and consumer discretionary to sectors that expected to benefit from the reopening of the economy such as energy and industrials. 

Wednesday

European shares climbed for a third straight session on Wednesday amid the optimism over the COVID-19 vaccine that overshadowed concerns about the economic damage from a second wave of coronavirus infections across the region.  The pan-European STOXX 600 gained 0.4% building on a 5% rally this week as investors bought banks and travel related stocks, both stocks having underperformed this year.  Technology stocks .SX8P that have tracked a surge in their US counterparts since the coronavirus-driven crash in March dropped 0.5%.  The MSCI broadest index of Asia-Pacific shares outside Japan climbed 0.4% while the Japanese Nikkei climbed 1% as investors switch from coronavirus winners into some of the hardest hit sectors.  Banks made some additional gains to Tuesday’s gains as did energy and some travel stocks while tech companies dropped.  Oil futures sat by two-month highs on anticipation of better demand in a post-pandemic world.  Amazon.com Inc was under pressure overnight after European authorities filed an antitrust suit against the online retailing giant.  The company suffered its sharpest two-day drop since March, losing 8%, although it gained 64% this year.   The blue-chip Down Jones buoyed by industrial shares was up nearly 4% mid-week, while the NASDAQ has almost lost that much and the S&P gained 1%.  This came along with a big sell-off in US Treasuries and the Japanese yen.  Germany’s 10-year government bond yield climbed to a two-month high on Wednesday on the news about the COVID-19 vaccine that continued to boost expectations for a brighter economic outlook and weigh on the demand for safe-haven debt.  The prospect of the vaccine hurt German bonds, which are considered one of the safest assets in the world.  The 10-year bond yield climbed to -0.456% in early trade its highest level in two months. Whilst bond yields were slightly higher across the euro area, US bond markets were closed for Veterans Day.  Italy’s 10-year bond yield was almost 2 bps higher on the day at 0.74% moving away from record lows hit briefly on Monday before the Pfizer vaccine news broke.  The yield on the 10-year US Treasury notes increased to 0.972% on Wednesday up from the previous Friday level of 0.82%. 

Thursday

On Thursday European shares retreated from an eight-month highs as surging coronavirus infections raised doubts about a faster economic rebound.  The pan-European STOXX 600 index was down 0.7% by 0804 GMT taking off gains of more than 13% this month that had set it on course for its best monthly ever performance.  London’s FTSE 100 dropped 0.9% as data showed the UK economy grew by a slower than expected 1.1% in September from August before the latest restrictions were set in place.    

Currency Roundup

According to analysts the increase in the dollar on Monday of 0.5% was caused by investors quitting long positions in major safe-haven currencies such as the Japanese Yen and the Swiss franc.  The dollar has lost around 1.4% this month until the victory of Democrat Joe Biden became apparent over the weekend. 

The dollar was steady on Tuesday and the yen remained near three-weeks lows as investors remained optimistic about the progress of the COVID-19 vaccine.  The Japanese Yen that had its biggest one day drop since March after the vaccine announcement was little changed on Tuesday at 105.28 yen to the dollar.  The yen had initially recovered back some of its losses from the day before. 

On Wednesday sterling rose to a six-month high versus the euro over optimism that a vaccine against COVID-19 would bolster the UK economy and shifting expectations for BREXIT and negative interest rates.  Whilst the pound hit 88.61 pence per euro, the euro was down around 0.4% on the day against the dollar.  The dollar rose and the safe-haven yen weakened again on Wednesday as the markets continued to adjust to higher interest rates and prospects for economic growth after the new news on Monday of encouraging results for the vaccine.  The euro dropped to its lowest level against the dollar in a week as yields on US bonds rose compared with those of European bonds.  The dollar was up 0.5% on Wednesday against a basket of currencies after a flat day on Tuesday and an increase of 0.5% on Monday.  Meanwhile on Thursday the dollar held broad gains as investors lessened the bullish expectations about the COVID-19 vaccine. 

UK Economy

The British economy grew by a slower than expected 1.1% in September from August even before the latest COVID-19 restrictions on businesses.  This has left the country lagging behind other rich nations in the recovery from the pandemic.   In July-September, gross domestic product grew by a quarterly record of 15.5% however this did not make up for the nearly 20% downfall in the second quarter that included the first coronavirus lockdown.  Meanwhile, the economy is being boosted by more than 200 billion pounds’ worth of emergency spending and tax cuts ordered by finance minister Rishi Sunak and by the Bank of England’s bond-buying programme which is now expanded to almost 900 billion pounds.  According to the Office for National Statistics (ONS), GDP remained almost 10% smaller going into the final quarter than at the end of 2019, twice as big as the drop in Italy, Germany and France and nearly three times the size of the US fall.   Last week, the Bank of England said that the world’s sixth-biggest economy was likely to shrink by a record 11% in 2020 before growing by just over 7% in 2021. 

UK Redundancies Hit Record High

According to the Office for National Statistics on Tuesday, a record 314,000 British workers were made redundant in the three months to September, representing 181,000 more than the second quarter.  The Bank of England is expecting around 5.5 million employees will need furlough support during the lockdown happening this month in England up from just over 2 million in October.  Furthermore, the end to the Brexit transition period in seven weeks’ time has also weighed on the confidence of employers as no trade deal has yet been struck between Britain and the European Union.  Finance minister Rishi Sunak said that the publishing of the ONS figures “underline the scale of the challenge we’re facing.”  Meanwhile critics of Sunak said that his previous reluctance to extend the programme led to unnecessary redundancies.  Tax data that was released on Tuesday showed a 33,000 decline in the number of employees in October, and almost 800,000 jobs lost since March. 

Oil

Oil increased by about 8% on Monday, its biggest daily gain in more than five months after Pfizer announced promising results for the COVID-19 vaccine.  Brent crude settled at $42.40 a barrel up 7.48% while US West Texas Intermediate Crude settled at $40.29 a barrel or 8.48%.  Furthermore oil markets rose after Saudi Arabia suggested that other oil producers and Saudi Arabia could adjust their current supply-cut pact by perhaps taking more barrels off the market if demand drops in winter as infections surge and before the vaccine is available.  

Gold

The price of gold dropped as much as 5.2% on Monday following the news from Pfizer Inc about the experimental COVID-19 vaccine.  While the vaccine optimism lifted risk appetite concerns emerged about its mass roll-out and uncertainties remained as the coronavirus cases continued to increase.  Gold tends to benefit from the widespread stimulus as it is considered a hedge against inflation and currency debasement.  Tuesday saw the price of gold rising by more than 1% following a sharp slide in the last session as focus returned to the likelihood of more monetary stimulus to revive the global economy.  Spot gold had risen 1.4% to $1,888.51 per ounce during the day whilst US gold futures were 1.7% lower at $1,886.40. 

Malta:  International Trade in Goods: September 2020

In a press release dated 9 November 2020 the National Statistics Office shows that provisional data for registered international trade recorded a trade deficit of EUR 131.8 million during September 2020 compared to a deficit of EUR 323.1 million in the corresponding month of 2019.  Both imports and exports registered declines of EUR 262.1 million and EUR 70.7 million respectively compared to the same month last year. Meanwhile for the first nine months of this year, the trade deficit narrowed by EUR 1,311.9 million when compared to the corresponding period of 2019 reaching EUR 1,880.1 million.  Both imports and exports declined by EUR 1,717.9 million and EUR 406.1 million respectively.   

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