“Christine Lagarde calls for unlocking EU Aid…”

European Central Bank President called on European leaders on Thursday to unlock aid for a region that is facing damages from the second wave of the coronavirus pandemic.  The EU’s 750 billion-euro recovery fund which is beneficial for those countries hard hit by the pandemic was blocked by Hungary and Poland this week, increasing the risk that even if a compromise is reached the funds will be delayed.  The ECB president said to the European Parliament’s Committee on Economic and Monetary Affairs in a hearing, “The Next Generation EU package must become operational without delay.”   She further said that “the euro area economy is expected to be severely affected by the fallout from the rapid increase in infections and the reinstatement of containment measures, posing a clear downside risk to the near-term economic outlook.”  She repeated the promise to ease policy at the ECB’s 10 December meeting, with measures focused on more emergency government bond buys and cheap loans to banks.  She said that, “the key challenge for policymakers will be to bridge the gap until the vaccination is well advanced and the recovery can build its own momentum.” She further added that “when thinking about favourable financing conditions, what matters is not only the level of financing conditions but the duration of policy support too.”  With regards to the European Central Bank Christine Lagarde said on Thursday that the European Central Bank could “neither go bankrupt nor run out of money” even if it were to suffer losses on the multi-trillion-euro pile of bonds it has bought under its stimulus programmes.  In response to a question raised by an Italian member of the European Parliament she said, “As the sole issuer of euro-denominated central bank money, the Eurosystem will always be able to generate additional liquidity as needed.” Hence it will not go bankrupt and neither run out of money. Should any financial losses occur they would not impair the ability of the Bank to seek and maintain price stability. 

The adoption of the EU’s 2021-2027 Budget

Hungary and Poland blocked the adoption of the EU’s 2021-2027 budget and recovery fund.  The veto that threatens to delay the disbursement of the recovery fund was to be discussed at a meeting of European affairs ministers on Tuesday with a video conference of EU leaders on Thursday.    Expectations of the veto had little market impact however according to analysts it might have capped the news from Moderna, the US drugmaker that became the second US drugmaker after Pfizer last week to report the results of the experimental vaccine. 

US Retail Sales

US retail sales increased less than expected in October and could further slow down amid the increase in COVID-19 infections and declining household income as millions of unemployed Americans lose government financial support.  According to the Commerce Department on Tuesday, Retail sales climbed 0.3% last month.  Meanwhile data for September was revised downwards to show sales surging 1.6% instead of the increase of 1.9% as previously reported.  Excluding automobiles, gasoline, building materials and food services, retail sales increased by 0.1% after a downwardly revised 0.9% increase in September. Imposed restrictions can further cut spending and further trigger another wave of layoffs.  The supplement, part of a more than $3 trillion government coronavirus relief, has lapsed for millions of unemployed and underemployed workers.  A second rescue package is unlikely before the new president takes office in January.  The economy grew at a 33.1% rate in the July-September quarter after contracting at 31.4% pace in the second quarter. 

China’s Factory Output

China’s factory output rose faster than expected in October and retail sales surged as the recovery in the world’s second-largest economy from its COVID-19 slump gathered momentum.  Industrial production climbed 6.9% in October from a year earlier, showed data from the National Statistics Bureau on Monday, in line with September’s gain.  The upbeat figures came along as other Asian countries climbed out from their pandemic depths with Japan’s economy reporting its fastest quarterly growth on record.  China’s industrial sector has experienced an impressive turnaround from the pandemic amid resilient exports.  As the coronavirus is mostly under control in China, consumers spending is increasing boosting activity further.    

Currency Roundup

The euro rose against the dollar on Tuesday on optimism over another coronavirus vaccine, while the Chinese yuan hit its highest against the US currency since June 2018.  Euro dropped against a stronger pound, which gained on media reports that Britain could reach a post-Brexit trade agreement with the European Union by early next week.  Meanwhile, Moderna the drug maker became the second US pharmaceutical company in a week to report positive results from trials of a COVID-19 vaccine.  Whilst last week progress regarding the vaccine helped the dollar against the safe-harbour yen and the Swiss franc on Tuesday the yen gained background against the dollar.  The pound edged higher on Tuesday weighing on the dollar earners such as consumer staple stocks.  On Wednesday the dollar remained under pressure and briefly dropped to its lowest in over a week as tighter economic restrictions across the US and Europe tested market optimism over vaccine trials. Meanwhile, sterling was aided on Wednesday by a weaker US Dollar and by hopes that Britain will reach a post-Brexit deal with the European Union in time for its departure from the EU in January.   

Market Wrap

European shares ended at a more than eight month high on Monday as positive data from Moderna Inc’s COVID-19 vaccine boosted investor confidence.  Moderna became the second drugmaker in a week to report high efficacy for an experimental coronavirus vaccine after Pfizer made a similar announcement on 9^th November.  The pan-European STOXX 600 ended 1.3% higher with oil stocks leading the gains amid a 4% jump in oil prices, while banks climbed 3.1% led by Spanish lender BBVA.  The benchmark STOXX 600 has gained nearly 40% from its March lows and is on track for its best month in nearly three decades.  However, the economic disruption arising from a spike in coronavirus cases across Europe has led the index to underperform its US peers this year.  Data showing that China’s factory output rose faster than expected in October and that retail sales surged had helped sentiment earlier in the day. 

World stock markets moved higher on Tuesday after the second major coronavirus vaccine boost in the space of a week propelled them higher again and has placed Europe on course for its best month in nearly three decades.  European stocks slipped from their eight-month highs as tighter coronavirus restrictions across the continent raised doubts about a swift economic rebound that offset optimism about a COVID-19 vaccine.   Travel stocks dropped 1.1%, British airline Easyjet dropped 1.9% after it recorded a GBP 1.27 billion annual loss, the first in its history.  Healthcare and tech sectors that have outperformed the broader market during the pandemic declined 1.3% and 0.6% respectively.  London’s FTSE 100 retreated from more than a five-month high on Tuesday as a stronger pound pressured exporters and investors remained cautious about a post-Brexit trade deal with the European Union.  The blue-chip index dropped 0.4% with energy, bank and travel and leisure stocks leading the declines. 

Global shares dropped on Wednesday as soft US retail sales raised worries that rising coronavirus cases could stifle a still fragile economic recovery dampening any news about breakthroughs from vaccine.  Whilst the US S&P 500 futures shed 0.4% a day after the S&P 500 index lost 0.48%, Europe’s EUR Stoxx 50 futures eased 0.3%.  Japan’s Nikkei dropped 1.1% amid news that new coronavirus cases in Tokyo hit a record high near 500 and reports that the city may set instructions to shorten their hours again.  Meanwhile, the MSCI’s broadest index of Ex-Japan Asia Pacific shares climbed 0.3% amid better handling of the pandemic in much of the region and the continued pickup in China’s economic recovery.   European stocks slipped on Wednesday amid worries about further economic damage and new restrictions in place caused by the resurgence in the number of cases.  The pan European STOXX 600 extended the losses for a second session after dropping 0.4% by 0805 GMT.  Real estate and energy stocks fell the most while tech advanced. Meanwhile, European stocks fell on Thursday following the sharp losses on Wall Street as investors are concerned about another round of shutdowns due to a surge in coronavirus cases in the US.  The pan European STOXX was down 0.9% in the morning session with growth sensitive oil and gas, banking, mining and travel sectors dropping the most.  Defensive healthcare and utilities posted small losses. 

World stocks edged higher on Friday as hopes of economic recovery ahead has helped to offset news that the US Treasury was ending the emergency loan programmes.  The gains were modest amid the increase in virus cases around the world that continued to damage sentiment

US Labour Market

The number of Americans filing first-time claims for jobless benefits increased last week, amid the new business restrictions to control the COVID-19 pandemic.  This weekly unemployment claims report from the Labour Department on Thursday, the most timely data on the health of the economy, also showed at least 20.3 million people on unemployment benefits at the end of October.  Initial claims for state unemployment benefits increased 31,000 to a seasonally adjusted 742,000 for the week ended 14 November. 

Bitcoin

Bitcoin broke through the $18,000 mark on Wednesday moving closer to the record peak near the $20,000  reached in December 2017, extending its bull run after PayPal last month allowed its customers to use the cryptocurrency on its network.  Bitcoin although highly volatile is attracting investors seeking an inflation hedge as they are concerned that the printing of money by the central banks since the beginning of the pandemic could end up debasing the value of fiat currencies.   The original and biggest cryptocurrency climbed as high as $18,483 and was last up 2%. It increased about 160% this year and in the first three days of the week. 

Oil

The positive news about the vaccine helped oil prices to add to their 16% gain of November.  US crude inched up to $41.67 per barrel after rising 3.02% on Monday and Brent gained 0.7% after a 2.43% jump the day before.  Tuesday saw oil prices rising higher on expectations that OPEC and its allies will extend oil production cuts for at least three months and the news of another promising vaccine.  Brent crude futures for January climbed 0.4% to $43.98 a barrel and US West Texas Intermediate crude for December added 0.3% to $41.47 a barrel.  Oil prices firmed on Wednesday amid hopes that producer group OPEC and its allies will delay a planned increase in oil output to offset a bigger than expected build in US crude inventories.  Brent crude climbed 1.4% to settle at $44.34 a barrel while US West Texas Intermediate crude gained 0.9% to end the session at $41.82.  Both contracts jumped by about $1 after Pfizer Inc said that final results from late-stage trial of its vaccine showed it was 95% effective.  Meanwhile last week it had put the efficacy at more than 90%.  In order to cater for the weaker energy demand as the pandemic continues with its second wave, Saudi Arabia has called on fellow members of the OPEC+ group to be flexible in responding to oil market needs.   OPEC+ held a meeting on Tuesday that made no formal recommendation ahead of the group’s full ministerial meeting on 30 November and 1 December to discuss policy.  Members of the OPEC+ are leaning towards delaying a previously agreed plan to boost output in the new year by 2 million barrels per day or 2% global demand according to Reuters sources this week.  They are considering options to delay the increase by three or six months.  

Malta:  Harmonised Index of Consumer Prices (HICP): October 2020

In October 2020, the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 0.6% up from 0.5% in September 2020.  The largest upward impact on annual inflation was measured in the Food and Non-alcoholic Beverages Index, while the largest downward impact was recorded in the Transport Index.  (HICP measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services.  HICP is calculated according to rules specified in a series of European Union Regulations that were developed by Eurostat in conjunction with the EUR Member States.  It is used to compare inflation rates across the European Union). 

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