“European Central Bank Meeting…”

The European Central Bank (ECB) continued with its flow of stimulus as was expected on Thursday, as any retreat would accelerate the rise in borrowing costs and prevent the potential recovery. The ECB has bought around Eur 80 billion worth of debt per month under Pandemic Emergency Purchase Programme (PEPP) this quarter, up from around EUR 62 billion in the first quarter.   The ECB also said that PEPP would last until March 2022 and that it reserved the right to buy less than its purchase quota or increase it as needed to “maintain favourable financing conditions”. “The Governing Council stands 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,” the ECB said.  Meanwhile inflation is surging and last month exceeded the ECB’s target of just under 2%, a mark it has undershot for most of the last decade.  The economy will need another year just to grow back to its pre-pandemic level and the inflation jump is mostly a reversal of last year’s energy price plunge, not the start of a new era of price pressures, policymakers have said.  Europe is far behind the United States in its recovery and is lagging on vaccinations, so that any withdrawal of support ahead of the U.S. Federal Reserve would be seen as a dangerous signal. Commenting at a news conference after the policy meeting, ECB President Christine Lagarde said the progress in vaccination campaigns should allow for a gradual relaxation of containment measures which should pave the way for a firm rebound in economic activity in the course of 2021.  The near-term economic outlook remains clouded by the uncertainty about the resurgence of the pandemic and the rollout of the vaccination campaign. Further comments were related to inflation that has picked up over recent months on account of some temporary factors and an increase in energy price inflation.  Meanwhile, underlying price pressures remain subdued in the context of significant economic slack and still weak demand.  She added that the euro area financing conditions have remained broadly stable recently after the increase in market interest rates earlier in the year. However, risks to wider financing conditions remain.  Lagarde further said that they will continue monitoring developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.

German Exports

German exports rose in April, amid the increase in trade with the United States, suggesting a continued recovery in Europe’s biggest economy.  Seasonally adjusted exports increased by 0.3% on the month after an upwardly revised rise of 1.3% in March, the Federal Statistics Office said on Wednesday. Exports to the United States jumped by 59.9% compared to April last year soon after Germany entered its first lockdown to curb the coronavirus. Meanwhile, exports to China climbed by 16% over last year while sales to the United Kingdom rose 64%, the first increase since the beginning of the year and since Brexit.  Imports dropped 1.7% after an increase of 7.1% in the prior month, as more German companies reported bottlenecks and rising costs for raw materials.

UK Economy

The UK’s economic output in April was increased by a record 27.6% than the year before, official data showed on Friday.  The increase reflects recent reopening and the scale of disruption to everyday life early in the COVID pandemic.  In April, output rose by 2.3%, marking the fastest growth since July, said the Office for National Statistics (ONS). However, British economic output is still 3.7% lower than in February 2020, before the pandemic led to lockdown measures.  Last month the Bank of England raised its forecast for British economic growth in 2021 to 7.25% from February’s estimate of 5.0%.  This would be the fastest annual growth since 1941. 

Inflation in the US

US consumer price increased solidly in May, leading to the biggest annual increase in nearly 13 years amid the reopening economy that boosted demand for travel-related services.  Meanwhile a global semiconductor shortage drove prices for used motor vehicles.  The data was underscored by other data from the Labour Department on Thursday showing the number of Americans filing new claims for unemployment benefits dropped last week to the lowest level in nearly 15 months.  Vaccination roll-outs, the support from the government in trillion of dollars and record-low interest rates are rising up demand.  Meanwhile companies are struggling for raw materials and labour.  May’s inflation drivers appear to be temporary, fitting in with Federal Reserve Chair Jerome Powell’s repeated assertion that higher inflation will be transitory.  The consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009.   In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008 and followed a 4.2% rise in April.

President Biden embarks on 8-day trip to Europe

US President Joe Biden departs for Britain on his first trip abroad since taking office.  This is an eight day trip to restore the trans-Atlantic ties which were strained during the Trump era and to reframe the relations with Russia.  This trip is a test to show the president’s ability to manage and repair relationships with major allies who grew disappointed with Donald Trump’s trade tariffs and withdrawal from international treaties.  The summit to be held with Russian President Vladimir Putun on 16^th June in Geneva is an opportunity to raise the concerns of the US directly with Putin about ransomware attacks emanating from Russia, Moscow’s aggression against Ukraine and other issues.  Biden will make his first stop in Cornwall where he will participate in the G7 summit.  The meeting is expected to focus on vaccine diplomacy, trade, climate and an initiative for rebuilding infrastructure in the developing world.  Biden met Boris Johnson on Thursday, an opportunity to renew the US-British “special relationship” after Brexit.  After three days of G7 summitry, Biden and his wife shall visit Queen Elizabeth.  After he travels to Brussels for talks with leaders of NATO and the European Union.  The agenda is expected to be dominated by Russia, China and the issue to getting NATO allies to contribute more to the common defense.  The trip will close in Geneva with the most difficult meeting of the week, a session with Putin.  White House national security adviser Jake Sullivan told reporters that Biden hoped his G7 and NATO meetings will bolster a sense of allied unity as he goes into his session with Putin.

China’s Highest Producer Inflation

China’s factory gate prices rose at their fastest annual pace in over 12 years in May, led by surging commodity prices, highlighting global inflation pressures at a time when policymakers are trying to restore growth.  Investors are increasingly worried that pandemic-driven stimulus measures could increase global inflation and forcing central banks to tighten policy, potentially curbing the recovery.  According to a statement by the National Bureau of Statistics (NBS) prices bounced back from last year’s pandemic lows.  There are signs that chinese factories, with already tight profit margins, are passing on higher raw material and component costs to overseas clients, which could reinforce the global inflation.  The release comes as U.S. inflation data on Thursday is being closely watched by investors, who are worrying that a high reading will lead to the Federal Reserve to start thinking about tapering its stimulus. 

Market Wrap

European shares hit record highs on Monday as another run of gains in automakers more than offset the early declines in commodity-linked shares resulting from downbeat China export data.  The European automobiles and parts index rose 0.9% to reach its highest since March 2015, extending a 5.3% rally from last week.  Eurozone banks were broadly higher as government yields were steady near one-month lows ahead of the ECB meeting on Thursday.  Miners dropped 1.6% as copper prices dipped after a slower-than-forecast growth in Chinese exports sparked concerns about the weakening demand for the red metal.  Oil and gas stocks dropped 0.3% as crude prices pulled back ahead of talks this week between Iran and world powers over a nuclear deal that if settled is expected to boost crude supplies. 

Euro zone bond yields edged lower on Tuesday, whilst markets awaited news from the policy meeting of the European Central Bank and the US inflation data both happening on Thursday. U.S. Treasury yields eased in early London trading as they waited on the results of upcoming government bond auctions, while a Federal Reserve reverse repurchase facility took in a record amount of money.  Germany’s 10-year Bund yield was last down 1 basis point at -0.20%, keeping near roughly one-month lows hit after Friday’s U.S. jobs data. Meanwhile, Italy’s 10-year government bond yields was down 1 basis point to 0.907%.

London’s FTSE 100 index edged higher on Tuesday, supported by positive earnings updates from Intermediate Capital Group and British American Tobacco.  The blue-chip index climbed 0.1%.  Gains were limited however on the FTSE 100 by a fall in heavyweight oil majors BP and Royal Dutch Shell due to lower crude prices.  European stocks inched higher on Tuesday lifted by utilities and telecom shares, although weak German industrial output data and doubts over the UK lifting restrictions later this month capped gains.  Travel and real estate shares also contributed to the higher European stocks.   The pan-European Stoxx 600 index rose 0.2% holding below all-time highs with sectors considered more stable such as utilities, real estate and telecoms leading the gains.  Data showed that German industrial output dropped unexpectedly in April, a further sign that semiconductor shortages and other supply bottlenecks are hampering the recovery of the economy.  Automakers slide 0.8% after a six-day rally. 

Wednesday saw world stock prices holding near record highs while US bond yields traded at their lowest levels in a month, as investors bet the Federal Reserve is somewhat far away from tapering its economic stimulus.  The 10-year U.S. debt yield, on the other hand, dropped to 1.513% its lowest level in a month, and down a quarter of a percentage point from a 14-month peak of 1.776% hit in March. It last stood at 1.533%, almost flat so far on Wednesday.  European stocks traded near record highs on Wednesday with investors holding off on big bets ahead of the policy decision from the European Central Bank and the US inflation reading later this week. 

Asian shares edged higher but held their recent trading range on Thursday as investors focused on US inflation data and the risk of an upside surprise that could lead the FED to start tapering its massive stimulus. Eurozone government bond yields were trading near their lowest levels since April on Thursday ahead of the ECB meeting where policymakers were expected to indicate that they will be keeping the stimulus tap flowing.  As a result, eurozone government bond yields have dipped in the weeks leading up to Thursday’s meeting, partly reversing a sharp rise in the preceding months.  Germany’s 10-year bond yield, the benchmark for the bloc, was a touch lower on the day at -0.252%.  Euro bond yields ranging from high-grade Netherlands to comparatively low-rated Italy were all trading near their lowest levels since April.  The closely-watched Italy-Germany 10-year bond yield spread held at 107 basis points. This gap, which is seen as a sentiment indicator in the single currency bloc, was as its tightest level in over a month on Wednesday at 104.98 bps.

Currency Roundup

The US Dollar found support on Tuesday as investors awaited the US inflation data to be released later in the week after softer-than-expected jobs data eased.   The euro traded at $1.2178, a bounce back from a three-week low of $1.2104 set on Friday, but slightly below its 20-day moving average. Against the yen the dollar rose 0.15% to Yen 109.42. The dollar remained at its recent small bounce on Wednesday as traders looked to the upcoming US inflation data and the ECB meeting to gauge the pace of global recovery and policymakers’ thinking about pulling back on stimulus.  As both were due on Thursday, volatility in major currencies has been killed as traders took a wait and see stance.  Whilst the euro was steady at $1.2179 in the Asia session, the dollar held at 109.47 yen.  Sterling has stalled amid doubts over the rising cases of the coronavirus variant in Britain that could delay business reopening plans scheduled for 21^st June.  The currency was bought at $1.4155. 

Wednesday saw the euro rising to a one-week high at $1.2218 and to finish little changed.  It was mostly flat at $1.2169 in European trade. 

The dollar traded near a five-month low versus major peers on Thursday as investors awaited the US inflation data and the ECB meeting later in the day, while an index of volatility among major currencies dropped to new lows. 

The yen traded at 109.46 per dollar also little changed from Wednesday and near the middle of the 109.19-110.325 range of the past two weeks. 

Sterling dropped to a one month low versus the dollar on Thursday after Britain and the EU failed to agree on solutions to post-Brexit trade problems in Northern Ireland.  The UK and the EU exchanged threats this week in a standoff that could cloud a weekend international summit hosted by Britain.  Sterling took a hit after the European Commission Vice President Maros Sefcovic said on Wednesday that the EU was considering advancing its legal challenge to Britain over UK action in Northern Ireland, which could result in a court case by autumn or the imposition of tariffs and quotas.  Sterling continued to drop on Thursday, touching its lowest level versus the dollar since 14 May of $1.4074 in early trading.  Meanwhile versus the euro, the pound was 0.1% lower at 86.41 pence, touching a ten-day low against the single currency. 

Oil

Oil prices pulled back on Monday after touching two-year highs on expectations of improved demand and OPEC producers keeping supply curbs in place.  Prices retreated from session highs early, and analysts cited pressure from Chinese data that showed crude oil imports fell to a year’s low in May.  Brent crude LCOc1 settled at $71.49 a barrel, falling 40 cents after hitting $72.27 a barrel, its highest since May 2019 whilst U.S. West Texas Intermediate CLc1 settled at $69.23 a barrel after touching $70 for the first time since October 2018. Crude increased for two weeks, with Brent rising by 38% this year and WTI rising 43%, helped by the recovery from pandemic-related demand disruptions and supply curbs by the Organization of the Petroleum Exporting Countries and allies. OPEC+ has boosted oil prices by sticking to supply restraints through July.  On Monday, OPEC+ Secretary General Mohammad Barkindo said OPEC+ expects inventories to fall further in coming months.  Oil prices rose on Tuesday settling at the highest in more than two years after the top US diplomat said that even if the US were to reach a nuclear deal with Iran, hundreds of US sanctions on Tehran would remain in place.  That could mean additional Iranian oil supply would not be re-introduced into the market soon.  Brent crude rose 73c or 1% to close at $72.11 a barrel, the highest it has settled since May 2019 while US West Texas Intermediate oil rose 82 cents or 1.2% to settle at $70.05 a barrel, the highest since October 2018.  The United States told Iran on Tuesday that it must let the U.N. atomic agency continue to monitor its activities, as laid out in an agreement that has been extended until June 24, or put wider talks on reviving the Iran nuclear deal at risk. Wednesday saw oil prices increase for a second session on signs of strong fuel demand in western economies, while the prospect of Iranian supplies returning faded away as the US secretary of state said sanctions against Tehran were unlikely to be lifted.  Brent crude LCOc1 futures were up 32 cents, or 0.4%, at $72.54 a barrel having earlier touched $72.83, the highest since May 20, 2019. Brent rose 1% on Tuesday. Meanwhile, U.S. West Texas Intermediate (WTI) crude CLc1 futures climbed 31 cents, or 0.4%, to $70.36 a barrel, after rising to as high as $70.62, highest since Oct. 17, 2018. WTI prices climbed 1.2% on Tuesday.

Bitcoin

Bitcoin funds and products posted record outflows last week as investors were cautious regarding the cryptocurrency as it has seen its upward momentum stall in the last few months according to digital currency manager CoinShares data released on Monday.  In the week ending 4th June bitcoin outflows hit $141 million representing 8.3% of the net inflows seen this year. For the year so far, bitcoin still showed net inflows of $4.2 billion. The cryptocurrency sector overall suffered outflows of $94.2 million last week, the data showed. During the month of May Bitcoin dropped 35.4% while so far in June it dropped 4.8%.  Meanwhile, ether, the token used for the Ethereum blockchain, continued to see inflows, with $33 million this week. So far this year, inflows into ether products and funds totaled $1 billion.

Bitcoin dropped to a three-week low on Tuesday on signs that institutional investors are acting cautious, while the head of the US Internal Revenue called for lawmakers to provide authority for tighter reporting rules on crypto transfers.  The IRS chief Charles Rettig on Tuesday said that Congress needs to provide clear statutory authority for the tax agency to collect information on cryptocurrency transfers valued at over $10,000 that go unreported.  Retting said before the Senate Finance Committee that cryptocurrency market capitalization is over $2 trillion, with more than 8,600 exchange worldwide.  The cryptocurrency has dropped by half since hitting a record of almost $65,000 in April. On Wednesday bitcoin held gains from its biggest rally in four months when it jumped nearly 12%.  Bitcoin has struggled since reaching a record of $64,895.22 in mid-April. 

Malta:  International Trade in Goods – April 2021

A press release by the National Statistics Office dated 9^th June 2021, presents all the international trade in goods registered up to the indicated cut-off date.  Provisional data recorded a total trade in goods deficit of EUR254.2 million during April, compared to a deficit of Eur 157.4 million in the corresponding month of 2020.  Imports amounted to EUR541.1 million, while exports totaled EUR 286.9 million.  This represents an increase of EUR151.6 million and EUR 54.8 million, respectively over the same month of the previous year.  The increase in the value of imports was primarily due to Machinery and transport equipment (EUR170.4 million) and on the exports side the main increase was registered in Chemicals. 

Meanwhile, during the first four months of the year, the total trade in goods deficit narrowed by EUR 114.7 million when compared to the corresponding period of 2020, reaching EUR 651.1 million.  Both imports and exports decreased by EUR 248.5 million and EUR 133.7 million respectively and amounted to EUR 1,701.3 million and EUR 1,050.2 million.  Lower imports were mainly recorded in Mineral fuels. Lubricants and related materials, Machinery and Transport equipment accounted for the main declines, partly offset by an increase in Chemicals. 

Malta:  Index of Industrial Production – April 2021

In April 2021, the seasonally adjusted index of industrial production increased by 5.3% over March 2021.  The increases were registered in the production of energy (13.1%), consumer goods (6.5%), capital goods (4.9%) and intermediate goods (3.2%).  Meanwhile compared to April 2020, the working-day adjusted index of industrial production increased by 16.4%.  Increases were registered across all main industrial grouping that is capital goods (31.5%), consumer goods (15.8%), energy (14.8%) and intermediate goods (6.6%). 

Malta: Residential Property Transactions – May 2021

A press release issued by the National Statistics office dated 10^th June 2021, shows that in May 2021 the number of final deeds of sale in relation to residential property amounted to 1,158 representing an increase of 6.6 deeds when compared to those registered a year earlier.  The value of these deeds amounts to EUR 319.5 million, more than three times higher than the corresponding value recorded in May 2020.  With regard to the region where the property is situated the highest numbers of final deeds of sale were recorded in Gozo, and Ħaż-Żabbar, Xgħajra, Żejtun, Birżebbuġa, Marsaskala and Marsaxlokk regions.  The lowest number of deeds were noted in the Cottonera region and the region of Mdina, Had-Dingli, Rabat, Mtarfa and Mgarr. 

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