“ECB Study on House Prices…”

Source: Reuters

House prices, now excluded from euro zone inflation data, would have persistently raised consumer prices in recent years, a study published by the European Central Bank showed on Tuesday.  The study highlights policymakers’ unease with the current indicator. Once corrected for housing costs, eurozone inflation data would have hit or even exceeded the ECB’s target for some years, even as the bank was providing extraordinary stimulus to raise prices, showed figures from the study.  The paper, part of the ECB’s recent strategy review, concluded that housing costs would have led to “persistently higher” inflation since around 2014 and between 2018 and 2020, inflation would have been around 0.2-0.3 percentage points higher. Although the ECB does not calculate inflation data, it said in July that it would consider estimates on the cost of owner-occupied housing on inflation until Eurostat, the EU’s statistics agency, fixes the broader measure.  Policy hawks argue that exceptionally low interest rates put an upward pressure on house prices, so this pressure on inflation is likely to persist for years to come.  The data used to calibrate the policy are not capturing this. 

Eurozone Business Growth

Eurozone business growth was much weaker than expected this month amid curbs to limit the Delta variant of coronavirus that hit demand.  Furthermore, worsened supply chain constraints pushed input costs to an over two-decade high, showed a survey.  IHS Markit’s Flash Composite Purchasing Managers’ Index which is a good gauge of overall health, dropped to a five-month low of 56.1 in September from 59 in August. The supply distortions, one of the primary drivers of prices throughout the globe over the past months, are far from resolved and the trend of higher inflation is here to remain. 


The Federal Reserve said on Wednesday it will likely begin reducing its monthly bond purchases as soon as November and indicated interest rate increases may follow more quickly than expected.  The FED on Wednesday left its current target interest rate steady in the range of 0% to 0.25%. A drawdown of the central bank’s $120 billion in monthly bond purchases could begin after the 2-3 November policy meeting as long as US job growth through September is “reasonably strong”, said FED Chair Jerome Powell in a news conference following the central bank two-day session. The FED now projects inflation will run above its target for four consecutive years.  Meanwhile, policymakers have downgraded their expectations for economic growth this year with gross domestic product expected to grow 5.9% compared to the 7% projected in June, due to the new wave of coronavirus cases.  Powell told reporters financial conditions would remain accommodative even after the FED stops its asset purchases and emphasised that the decision on the bond-buying program was separate from any actions regarding interest rates.   

Bank of England

The Bank of England said the case for higher interest rates “appeared to have strengthened” on Thursday after it nudged up its forecast for inflation at the end of the year to over 4%, more than twice its target rate.  The BoE said it expected the overshoot to be temporary. However, two policymakers called for an immediate halt to the British central bank’s 895 billion pound  bond purchase programme, which is due to run until year-end. The BoE said it had revised down its expectations for the level of gross domestic product in the third quarter by around 1% from the August report, reflecting supply constraints.  But it said inflation which hit a nine-year peak of 3.2% last month would “temporarily” rise above 4% in the final quarter of the year. The BOE also said a jump in natural gas prices in recent weeks which has led to the collapse of several smaller British energy suppliers and forced the government to intervene meant inflation risked staying above the 4% in the first half of 2022 as well. 

Bank of Japan

The Bank of Japan met on Wednesday and made no policy changes and is not seen lifting rates anytime soon. 

German auto companies

Whilst Battery power could be the frontrunner to become the car technology of the future, hydrogen cars are not to be excluded.  This is the view of some major automakers such as BMW and Audi which are developing hydrogen fuel-cell passenger vehicle prototypes alongside their battery cars in preparation to a shift to abandon fossil fuels.  Global auto hub Germany is in sharp focus.  It is already betting billions on hydrogen fuel in sectors like steel and chemicals to meet climate targets. 

EU Energy Ministers

Energy Ministers from the European Union had to meet on Wednesday to discuss the soaring prices of gas and electricity across Europe, as some governments draw up measures to protect their consumers.  Benchmark European power prices have rocketed this year, more than trebling in Spain and elsewhere, partly due to the increase in gas prices that were driven up by factors such as low storage stocks, high EU carbon prices and low renewable energy output.  Benchmark European gas prices have increased by more than 250% since January.  Some governments, including Italy and Greece, have said they are considering measures such as subsidies or price caps to shield citizens from the rising costs as economies recover from the COVID-19 pandemic.  Spain has urged the EU to organise a more coordinated response, asking the European Commission to provide guidance on how member states can respond to the price spikes without testing EU rules.  The EU ministers on Wednesday also had to hold their first debate on proposals to toughen EU climate change policies, including proposals to expand the share of renewables in its energy mix to 40% by 2030.

US Weekly Jobless Claims

The number of Americans filing new claims for jobless benefits unexpectedly rose last week due to a surge in California, however, the labour market continues to steadily recover.  Initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 351,000 for the week ended 18 September according to the Labour Department on Thursday. Claims have dropped from a record 6.149 million in early April 2020, but still remain above the 200,000-250,000 range viewed as consistent with healthy labour market conditions. Job growth slowed in August, with payrolls posting their smallest gain in seven months amid a stalling in hiring in the high contact leisure and hospitality sector as infections driven by the Delta variant of the coronavirus surged.

Market Wrap

Stock markets and other riskier assets sank on Monday driven by the same fears.  Commodities also sold off.  The demand for safe-haven government bonds was boosted pushing yields which move inversely with prices down sharply.  Eurozone bond yields held steady on Tuesday as markets appeared to have calmed from Monday’s selloff due to fears about the Chinese property developer Evergrande’s debt problems and the implications for global growth. With stock markets stabilising on Tuesday, euro area bond yields were mainly stable.  After dropping 4 basis points on Monday, Germany’s 10 year yield, the benchmark for the euro area , was down a bit more than one basis point.  Meanwhile the risk premium on Italian bonds, which widened slightly to the highest in a week on Monday at around 104 bps on Tuesday.  Greece’s 10 year government bond yield dropped to its lowest since 31 August at 0.738%. Wednesday saw European stock markets rising, recovering from its early week losses.  Travel and leisure stocks jumped to a 14-week high.  Evergrande’s Frankfurt-listed shares jumped 15.1% after hitting multi-year lows in the previous session after the property developer said it would make a coupon payment on its domestic bonds, offering relief to investors. Three major US stock indexes climbed on Wednesday as investors mostly took in their stride the latest indications from the Federal Reserve. The S&P 500 registered its biggest daily percentage gains since 23 July.  While trading was choppy after the FED’s policy statement and comments by Jerome Powell, stocks finished close to where they were before the central bank news.  Stocks started the day higher as concerns eased over a default by China’s Evergrande.  On Wall Street the Dow Jones Industrial Average rose 1% to to 34,258.32, the S&P 500 gained 0.95% to 4,395.64 and the NASDAQ 100 added 0.99% to 15,176.51.  European stocks rose on Wednesday after developer China Evergrande said it would make some interest payments on its domestic bonds offering relief to investors.    The CAC 40 increased by 1.29% to 6,637, the DAX rose 1.03% to 15,506.74 whilst the FTSE 100 increased by 1.47% to 7,083.37.  The FTSE 100 recorded its best day in two months on Wednesday closing 1.47% higher at 7,083.37, extending gains helped by commodity-linked and bank stocks.  Meanwhile investors awaited key central bank meetings for clues on a timeline for tapering policy stimulus.  On Wall Street, the Dow Jones Industrial Average increased by 1.48% to 34,764.82, NASDAQ 100 climbed 0.92% to 15,316.58 whilst the S&P 500 increased 1.21% to 4,448.98.  European stocks climbed with the CAC 40 increasing by 0.24% to 6,652.76 and DAX increasing by 0.88% to 15,643.97,FTSE 100 dropped 0.07% to 7,078.35and China Evergrande moved closer to the potential default that investors are fearing by missing a payment deadline.   The firm is now in uncharted waters and enters a 30-day grace period. It will default if that passes without payment.

Currency RoundUp

US Dollar

Against a basket of peers, the greenback was up almost 0.2% on Monday and its highest in four weeks.  Euro was 0.15% lower on the same on Monday at $1.1707. The dollar hit its highest in a month on Thursday and pressed the euro towards major support levels, after the Federal Reserve set the stage for rate hikes next year, far sooner than its developed market peers are expected to move.   


Sterling which correlates with broader risk sentiment fell 0.5% to a four-week low of $1.3662.  On Tuesday the currency held near four-week lows as investors evaluated the direction the Bank of England would take at an upcoming policy meeting.  However, broader risk sentiment remained under pressure due to Chinese property company Evergrande related to debt troubles.  In late London trading the pound gave up all its earlier gains to trade flat on the day at $1.3664, slightly higher from Monday’s low of $1.364, its weakest level since 23 August.  The pound also received some support from a record $137 billion demand for its “green” government bond amounting to $10 billion.  Overall market mood is cautious amid the potential economic repercussions from Evergrande’s debt problems.  Against the euro, Sterling was slightly stronger at 85.9 pence, however, was still hovering around a two-week low.  Sterling fell to a one-month low on Wednesday as investors pushed back expectations of a rate hike by the Bank of England after weak data. The pound was also quite weak against the euro at 85.90 pence as participants awaited the next big FED event for hints on its future policy path. 


Oil prices dropped by 2% on Monday as investors grew more risk averse, which hurt stock markets and boosted the US dollar, making oil more expensive for holders of other currencies.  Brent crude fell $1.42 or 1.9% to settle at $73.92 a barrel after sinking to a session low of $73.52.  US West Texas Intermediate (WTI) declined $1.68 or 2.3% to end at $70.29 after falling to as low as $69.86.  Brent has gained 43% this year, supported by supply cuts by OPEC and its allies and some recovery in demand after last year’s pandemic induced collapse.  Wednesday saw oil prices settling higher with US West Texas Intermediate (WTI) crude futures rising 2.5% to $72.23 while Brent crude futures settled up 2.5% to $76.19 a barrel. Oil prices rose on Thursday, supported by growing fuel demand and U.S. crude inventories as production remained hampered in the Gulf of Mexico after two hurricanes. Brent crude was up  0.4%, to $76.47 a barrel while U.S. West Texas Intermediate (WTI) crude rose 0.6% to $72.66 a barrel. Earlier in the session, Brent rose to $76.53 a barrel, its highest level since mid-July.  Oil also found some support as several members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, struggled in recent months to raise output due to years of under-investment or delays in maintenance work because of the coronavirus pandemic. The oil market was also supported by a return of appetite for risky assets as concerns eased over a possible near-term default by Chinese property developer China Evergrande on its dollar bonds.


Gold consolidated on Wednesday as investors stayed away from making big bets ahead of expected cues from the Federal Reserve on its tapering strategy.  Spot gold moved up 0.2% at $1,777.74 per ounce while US gold futures rose 0.04% to %1,778.90.  Gold is considered a hedge against inflation, however a FED rate hike would lessen the appeal of the bullion as it would increase the opportunity cost of holding the non-yielding metal.  Gold prices dropped on Thursday as the dollar strengthened after the FED indicated the withdrawal of its asset purchases by next year and a sooner than expected interest rate hike.  Spot gold was down 0.2% at $1,764.06 per ounce while US Gold futures slipped 0.9% to $1,763.50 per ounce. 

Malta: Retail Price Index – August 2021

A press release dated 22September, 2021 showed in August 2021, the annual rate of inflation as measured by the RPI was 2.08% up from the 1.81% in July 2021.  The largest upward impact on annual inflation was measured in the Food Index (0.66%).  The RPI measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked to the Cost-of-Living Adjustment (COLA) increases and periodic rent payment adjustments.    

Malta:  Registered Unemployment – August 2021

In a press release dated 23rd September, 2021 data provided by Jobsplus for August 2021 shows that the number of persons registering for work stood at 1,442 decreasing by 2,230 when compared to the corresponding month in 2020.  The largest share of males and females on the unemployment register sought occupations as clerical support workers with 23.1% and 46% respectively. 

Antonella Mercieca

Client Relationship Manager


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


September 24th, 2021

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