“ECB keeps Policy Unchanged…”

ECB keeps Policy Unchanged

The European Central Bank (ECB) kept the policy unchanged on Thursday. With this decision the ECB’s benchmark deposit rate remains at minus 0.5 percent while the main rate remains at 0 percent.    The bank has taken the steps to end a historic economic decline across the 19-country currency bloc and said that, “The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.”  A resurgence in coronavirus infections is affecting investor and consumer confidence with many fearing new restrictions.  Meanwhile inflation has turned negative, an important factor for the ECB, as the risk that longer-term price growth is also taking a hit and a reversal of the downward spiral will be harder.  The focus has also turned to the euro that has firmed 8% against the dollar, damaging export competitiveness and cutting inflation further as imports costs drop. 

ECB President Cristine Lagarde Comments at ECB Press Conference

Cristine Lagarde said on Thursday that the ECB is carefully watching the implications of a strong euro, as she confirmed the bank expected to use its stimulus package in full to help pull the region out of recession. She warned that the signs of a second wave of new coronavirus infections across Europe represented “headwinds” to the economy and that “overall the balance of risks to the euro growth outlook is seen to remain on the downside.  This assessment largely reflects the still uncertain, economic and financial implications of the pandemic.”   Lagarde announced a slight upgrade in the ECB’s 2020 growth forecast amid improved consumer demand.  With inflation turning negative last month for the first time since May 2016, the ECB maintained its forecast for 0.3 percent inflation for the year as a whole, however, also said that more months of negative price movements are expected.  Lagarde said that “headline inflation is being dampened by low energy prices and weak price pressures in the context of subdued demand and significant labour market slack.” She further added that “clearly the extent that the appreciation of the euro exercises negative pressure on prices, we have to monitor carefully such a matter, and this was extensively discussed in the Governing Council.”  The euro has increased to around $1.20 due to various factors, such as the more discretionary inflation-targeting stance announced last month by the Federal Reserve and after the agreement of the EU wide pandemic recovery fund.  She stressed that she would not be commenting on the level of the euro and noted that the risk of outright deflation was not included in the ECB’s existing forecasts.   


Brexit talks faced another crisis on Monday after Britain threatened to undermine the exit agreement unless free trade terms are agreed by next month. In yet another twist to the four-year saga Prime Minister Boris Johnson’s government was reportedly planning new legislation to override parts of the Brexit Withdrawal Agreement it signed in January. Britain announced legislation on Wednesday for when it is outside the EU after throwing the trade talks in jeopardy by announcing in advance that the new plans would break international law and “clarify” a deal that it signed in January.  The trade negotiations have all but stalled over disagreements related to fisheries and state aid.  According to Michael Gove, the minister who is handling the Brexit divorce issues for Britain, the new bill will ensure that “no longer will unelected EU bodies be spending our money on our behalf.”  “These new spending powers will mean that these decisions will now be made in the UK, focus on UK priorities and be accountable to the UK parliament and people of the UK.”  It would also ensure that there would be no legal confusion about the fact that while Northern Ireland would remain subject to the EU rules on state aid for business, Britain will not.   The new legislation, the Internal Market Bill, will be scrutinized for its treatment of the Northern Ireland Protocol that forms part of the Brexit withdrawal agreement. 

China Factory Prices

Annual producer prices dropped for a seventh straight month but at a slower pace, while consumer prices experienced more moderate growth amid falling pork price inflation.  However, core consumer prices rose month-on-month for the first time since the coronavirus worsened in China in January.  China’s economy returned to growth in the second quarter of this year, helped by the government stimulus and as the country managed to get the virus broadly under control. Recent indicators have pointed to a sustained recovery.


Gold prices dropped 1 percent on Tuesday and continued slipping on Wednesday amid a stronger dollar that offset the support from a pullback in global equities, while investors awaited monetary policy strategies from central banks later in the week.  Spot gold was down 0.3 percent at $1,925.97 per ounce while US gold futures dropped 0.5 percent to $1,933.80.  The bullion found some support as Asian shares weakened, following a tech-led selloff on Wall Street on Tuesday that had forced investors to seek safe havens.  Gold steadied near a one-week high on Thursday due to a weaker dollar.   Spot gold was little changed at $1,945.17 per ounce after hitting its highest on Wednesday, since 3 September at $1,950.51.


In commodities, oil prices hit its lowest price since July, after Saudi Arabia made hefty price cuts for supply to Asia. U.S. crude fell 1.26% to $39.19 a barrel, while Brent crude dropped to $42.11. On Wednesday oil futures clawed back some of the losses they sustained in the previous session however, new coronavirus cases in some countries undermined hopes for a steady recovery in global demand.  Brent crude was up 1.1 percent to $40.22 a barrel after dropping more than 5 percent on Tuesday to fall below $40 a barrel for the first time since June.  Meanwhile US crude was up 1.4 percent at $37.26 a barrel, after falling nearly 8 percent in the previous session.  Both major oil benchmarks are trading close to three-month lows. 

Market Wrap

On Monday world shares climbed slightly after last week’s fall as investors shifted from technology to health.  European stocks rose 1.2% on Germany’s Dax and London’s FTSE 100, even though German industrial production rose less than expected in July. The STOXX 600 index rose by 1%. Meanwhile, UK stocks were helped by a falling pound.  In the U.S. the Wall Street crash late last week looked far from over as the E-Mini futures for the S&P 500 slipped 0.5% and Nasdaq futures dropped 1.3%.  On Tuesday Frankfurt shares edged higher as other European markets dropped as data showed German exports rose in July. This latest news offset the concerns that the UK is in danger of leaving the EU without a trade agreement.  The pan-European STOXX 600 dropped 0.1 percent as the defensive sector indexes including food and beverages, healthcare and real estate climbed in early trading.   Meanwhile, the NASDAQ tumbled more than 3 percent at the open on Tuesday as investors sold off shares of TESLA and other tech heavyweights.  Furthermore, US-China tensions and concerns about a rocky economic rebound also weighed on sentiment.  At the open the NASDAQ dropped 3.65 percent to 10,900.70, the Dow Jones Industrial Average dropped 0.74 percent to 27,925.23 while the S&P 500 opened lower by 1.61 percent at 3,371.88.  Asian shares dropped on Wednesday and oil prices hit lows not seen since June after the technology shares sank for the third consecutive day.  The sell-off in high-flying US technology shares, was partly fuelled by concerns about excess purchases of call options, that increased the risk of a larger correction across other markets.   Japan’s Nikkei dropped by 1.69 percent.   London’s FTSE 100 edged higher as Brexit fears led the pound to a six-week low, while AstraZeneca tumbled after suspending trials for its leading COVID-19 vaccine due to an unexplained illness in a study participant. The blue-chip FTSE 100 climbed 0.6 percent with Glaxosmithkline and Uniliver contributing to such as increase.  European shares shrugged off the losses of the US tech stocks.   The safe-haven German government bond yields hit a new two-week low on Wednesday as US stocks dropped, and the halt of the coronavirus vaccine trial affected risk appetite.  Eurozone bond yields dropped across the board in early trade amid a boost in demand for safe-haven assets. Meanwhile hopes for a steady recovery in global economic demand have also been hurt by a rebound in the coronavirus crisis in countries such as India, Britain and Spain pushing oil futures to their lowest since June.  European shares edged higher on Thursday as investors awaited any indications of stimulus from the European Central Bank amid a strong euro.  The pan-European STOXX 600 index rose just 0.2 percent.  At the closing European bourses closed lower after the ECB kept its policy rates unchanged and said its existing stimulus measures were sufficient and likely to be used in full. 

Currency Roundup

On Wednesday sterling dropped to its lowest level in six months against the dollar as new legislation by the British government over the country’s post-Brexit plans stoked fears of a delay in the trade talks with the EU.  Sterling dropped $1.2919, its lowest level since July 29, and down 0.3 percent on the day.  The dollar rose while the Japanese yen held on to its gains on Wednesday.  The selloff in the stock market on Tuesday led investors to sell riskier currencies.  In the early European trading session, the dollar was slightly higher as US equity futures pared losses with the NASDAQ 100 futures and the S&P 500 futures.  Since Wednesday of the previous week the NASDAQ is down 10 percent losing about 1.77 trillion dollars in value.  The Euro edged higher on Thursday as traders awaited the European Central Bank meeting to gauge the policymaker’s views about the recent appreciation of the Euro and its impact on inflation.   China’s yuan slipped for the same reason.  Sterling firmed above a six -week low but could lose more ground amid concerns that Britain and the EU will fail on the trade deal. 

Malta:  Index of Industrial Production – July 2020

A press release by the National Statistics Office (7th September 2020) shows that in July 2020, the seasonally adjusted index of industrial production increased by 1.3 percent.  Increases in production were registered in capital goods and consumer goods with 11.1 percent and 0.1 per cent respectively.  The production of energy and intermediate goods fell by 2.7 percent and 0.9 per cent respectively.   Meanwhile, in comparison to July 2019, the working-day adjusted index of industrial production went down by 2.6 percent.  Decreases in production were registered in intermediate goods and capital goods by 9.9 percent and 6.1 percent respectively.  Increases of 1.6 percent and 0.8 percent were registered in the production of energy and consumer goods respectively. 

Malta:  International Trade in Goods:  July 2020

In a press release (9th September 2020) the national statistics office shows that provisional data for registered international trade recorded a trade deficit of EUR 231 million during July compared to a deficit of EUR 409.7 million in the corresponding month of 2019.  Both imports and exports registered decreases of EUR 221.7 million and Eur 43.1 million respectively when compared to the same month last year.  The decrease in the value of imports was primarily due to mineral fuels, lubricants and related materials, machinery and transport equipment.  Meanwhile on the exports side the main declines were registered in machinery and transport equipment, mineral fuels, lubricants and related materials.  During the first seven months of the year, the trade deficit narrowed by EUR 1,120.5 million when compared to the corresponding period of 2019 reaching EUR 1,470.9 million.  Both imports and exports decreased by Eur 1,326 million and EUR 205.5 million respectively.  Whilst lower imports were recorded in machinery and transport equipment, mineral fuels, lubricants and related materials on the exports side, mineral fuels, lubricants and related materials accounted for the decline.   

Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt/


September 11th, 2020

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