“European Central Bank Meeting…”

Source: Reuters

The European Central Bank on Thursday pledged to keep interest rates at record lows for even longer to help sluggish inflation in the eurozone rise back to its 2% target.  The bank said it would not hike rates until it sees inflation reach its 2% target “well ahead of the end of its projection horizon and durably.”  Inflation lagged below that level for most of the past decade and the goal has slipped further since the beginning of the coronavirus pandemic.  The ECB said, “The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two percent over the medium term.” It added “this may also imply a transitory period in which inflation is moderately above target.”  Governors from indebted countries such as Portugal’s Mario Centeno and Italy’s Ignazio Visco argued that the new strategy means the ECB should keep the money taps wide open for even longer.  Meanwhile, those who favour tighter policy and tend to come from countries  with lower debt-to-GDP ratios like Germany have been more cautious as they expect price pressures to return sooner.  Inflation in Germany is already set to surpass 2% this year due to temporary factors.  The ECB expects inflation in the eurozone as a whole to hit 1.9% this year before dropping back to 1.5% in 2022 and 1.4% the year after. 

UK Public Borrowing

Public Borrowing in the UK last month was almost a fifth lower than a year earlier, when the economy was at full force of the pandemic however rising inflation has put upward pressure on debt costs. Public sector borrowing, excluding public sector banks, fell to 22.8 billion pounds in June, still the second-highest June figure on record. The data showed Britain’s budget deficit leapt to 14.2% of gross domestic product during the financial year to the end of March 2021, its highest share of GDP since World War Two.  The Office for National Statistics said June’s debt servicing costs which include an inflation uplift to index-linked gilts’ future redemption values as well as actual interest payments increased to a record 8.7 billion pounds.  It added that a rise in the rate of retail price inflation was mainly to blame.  However, debt servicing costs as a % of GDP remain low by historic standards, and most economists say that the pace of economic recovery will be the key factor in improving the public financing.     Public borrowing for the first three months of the financial year totalled 69.5 billion pounds, down more than 40% from the three months to June 2020, when Britain recorded its heaviest-ever borrowing in cash terms due to its COVID spending surge. However, public debt as a share of GDP, excluding public sector banks, was 2.218 trillion pounds or 99.7% of GDP in June, its highest since March 1961.

Japan’s Core Inflation

Japan’s core consumer prices climbed 0.2% in June from a year earlier marking the fastest annual pace in over a year, showed data on Tuesday.  This is an indication that the global commodity inflation was gradually broadening.  The increase which is mainly due to higher energy costs, was much smaller than that of other major economies due to weak consumption showing expectations that the Bank of Japan will be forced to maintain its massive stimulus for the time being.  The increase in core consumer price index (CPI) that includes oil products but excludes volatile fresh food prices increased by 0.2% and followed a 0.1% increase in May.  This increase which was the fastest since March 2020, was due mainly to a 4.6% rise in energy costs with gasoline increasing up 17.9%.  This is an indication that householders were facing a higher cost of living.  With inflation well short of its 2% target, the BOJ is likely to lag well behind its counterparts in withdrawing back its massive monetary support to underpin a fragile recovery. While global commodity inflation has pushed up wholesale prices in Japan, consumer prices have barely risen as companies remain cautious about passing on higher costs to households. A resurgence in COVID-19 infections forced the government to impose new state of emergency curbs in Olympic host city Tokyo from Monday through August 22, dashing policymakers’ hope for a solid rebound in economic growth in July-September. In fresh quarterly projections released on Friday, the BOJ cut its economic growth forecast for the fiscal year ending in March 2022 to 3.8% from 4.0% due in part to the new curbs.

China holds benchmark lending rate

China kept its benchmark lending rate for corporate and household loans unchanged as its monthly fixing on Tuesday.  The one-year loan prime rate (LPR) was kept at 3.85%.  The People’s Bank of China (PBOC) lowered the amount of cash that banks must hold as reserves, releasing around 1 trillion yuan  in long-term liquidity to support economic recovery.   However, the central bank kept borrowing costs of medium-term lending facility (MLF) which serves as a guide for the Lending Reference rate unchanged at its latest operation last week.  The LPR is a lending reference rate set monthly by 18  banks who submit a monthly quotation by adding a premium over the MLF rate.  Setting the LPR slightly higher than the MLF rate in theory gives borrowers access to funds at rates that better reflect funding conditions. 

United States

According to the US Business Cycle Dating committee, the US recession touched off by the coronavirus lasted only two months, ending with a low point reached in April 2020 after the beginning of a sharp drop in economic activity in March of the same year.  The committee, a group of macroeconomists who assign the beginning and end dates of US business cycles said that while the country has by no means gotten back to normal operating capacity,  indicators of both jobs and production “point clearly to April 2020 as the month of the trough” with a rebound beginning in May.  About 22 million jobs disappeared from company payrolls in March and April of that year, an event that raised concerns about a new Depression and led Congress and the White House to approve the first several massive relief packages to keep firms and households afloat.  The announcement makes the pandemic recession by far the shortest on record.     

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week however, this is unlikely to suggest a material shift in labour market conditions.  Initial claims for state unemployment benefits increased 51,000 to a seasonally adjusted 419,000 for the week ended 17 July  said the Labour Department on Thursday.  Claims have declined from a record 6.149 million in early April 2020, however they remain above the 200,000-250,000 range that is seen as consistent with healthy labour market conditions.

Market Wrap

Stocks on Wall Street dropped as much as 2% on Monday, with the Dow Jones posting its worst day in nine months as COVID-19 deaths increased in the US.  The Dow Jones Industrial Average dropped 2.09%, the NASDAQ 100 dropped 0.9%, while the S&P 500 dropped 1.59%.   Riskier assets globally have come under pressure recently as many countries struggle to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could reverse the worldwide economic recovery.  European shares sank more than 2% on Monday, their worst session in nine months amid worries about the Delta coronavirus variant that could slow the global economic recovery.  The drop was led by travel stocks on worries that the variant could hamper travel demand.  Travel and leisure stocks dropped 2.3%.  The CAC 40 dropped 2.54%, the DAX and the FTSE 100 dropped 2.62% and 2.34% respectively.  Commodity-linked stocks, banks and travel shares lost more than 3% with the oil, travel and leisure indices hitting February lows.  Japan Index Nikkei 225 closed the day lower with 1.25%. 

European stocks bounced back on Tuesday after their worst selloff this year in the previous session, helped by a handful of positive corporate earnings and production updates from miners.  The CAC 40 closed 0.81% higher reaching 6,346.85, the DAX increased by 0.55% to 15,216.27 and the FTSE 100 climbed 0.54% reaching 6,881.13.   Meanwhile German bond yields slipped to fresh five-month lows as a reminder that investors remained worried about the spread of the Delta coronavirus variant could derail the economic recovery.  Asian stocks increased their losses on Tuesday as investor sentiment dampened further amid growing fears that the spreading of the Delta variant of the coronavirus would harm global economic recovery, sending riskier assets dropping sharply. Meanwhile, the Dow Jones Industrial Average climbed 1.62% to 34,511.99, the NASDAQ 100 increased by 1.23% reaching 14,728.21 whilst the S&P 500 increased 1.52% reaching 4,323.06.   

Wednesday saw the London FTSE 100 rising, led by gains in export-oriented retailers as the pound weakened while fashion retailer Next was the top gainer after raising its profit guidance on the back of robust earnings.  Retail stocks the top gainers among sectoral peers were up 2.5%.  The domestically focussed mid-cap index rose 0.8% pushed by gains in the travel and leisure stocks.  A number of upbeat updates from the European blue-chip firms helped the region’s benchmark index rise on Wednesday and further recover from Monday’s sharp losses, while travel stocks roared back after weeks of declines. The pan-European STOXX 600 index rose 0.7% and travel and leisure stocks jumped 3.2% recovering from the recent drop.  Meanwhile, Asian shares and US Treasury yields rose on Wednesday clawing back some of the week’s losses as investors reassessed economic worries.  On Wednesday the MSCI broadest index of Asia-Pacific shares outside Japan was up 0.17% trimming the losses for the week to around 2%, while the Japan’s Nikkei rose 0.9% after touching six month lows a day earlier.  Wall Street posted their second straight daily gain on Wednesday, with robust corporate earnings and renewed optimism about the US economic recovery.  All three major US stock indexes added to their previous session’s gains within 1% of their all-time closing highs.  Economically sensitive smallcaps, semiconductors and financials outperformed the broader market.  Meanwhile, US Treasury yields continued with their bounce from five-month lows following a weak 20-year bond auction which benefited rate-sensitive banks. The Dow Jones industrial average rose 0.83% to 34,798 , the S&P 500 gained 0.82% to 4,358.69 and the NASDAQ Composite added 0.78% to reach 14,842.63. 

Asian stock markets headed to their best day in two months on Thursday following the rebound on Wall Street.  Meanwhile Japanese markets were closed for a holiday.   

Currency Roundup

Sterling moved lower on Wednesday and was set for its fifth consecutive daily decline against the dollar due to the rising number of COVID Delta variant cases in Britain and the confusion around the lifting of restriction in England.  The pound this week dropped to its lowest point since 4th February of $1.3572 after Prime Minister Boris Johnson lifted most COVID-19 restrictions in England.  Against the euro, the pound edged 0.1% higher, changing hands at 86.40 after sinking to a two-month low of 86.69 pence against the EUR in the previous day.  Britain told the European Union on Tuesday to “think again” after the bloc published a plan for post -Brexit negotiations over the future of Gibraltar, which London said seeks to undermine British sovereignty over that territory.   The yuan moved higher on Wednesday as the dollar paused after its recent rallies and as Chinese companies ramped up dollar selling. Several market participants said gains in the yuan starting on Tuesday were supported by heavy dollar selling from corporates and major state-owned banks, leading to speculation as to whether authorities were trying to slow the pace of recent yuan weakness and prevent it from breaking through the psychologically important 6.5 per dollar level.

The dollar stood on the verge of the fresh year-to-date peaks on Wednesday, amid concerns about the surging of the virus infections and as investors waited for the European Central Bank for their next cue.  The dollar was  steady against the safe-haven yen, which has also been advancing  broadly while concerns grew about the surging number of COVID-19 cases.  Sterling faces pressure as cases soar while England drops most of its social curbs.   Elsewhere the Australian dollar was knocked by soft retail sales data and the expectation of more weakness in the near term as much of the country is locked down to slow the coronavirus transmission.  It was off 0.3% at $0.7310.  

The Dollar and the yen pulled back from multi-month highs amid a recovery in risk appetite as strong earnings lifted Wall Street stocks.  The dollar index that measures the currency against six major peers stood at 92.770 after pulling back from a 3 ½ month high of 93.194 reached on Wednesday.  The yen traded at Yen 129.95 per euro from an almost four month high of Yen 128.610 earlier this week and at 81.07 to the Australian dollar from a 51/2 month peak of 79.85.  Sterling traded at $1.3717 recovering from a 5 ½ month trough of $1.35725 reached on Tuesday despite the rising Delta variant cases in Britain and the confusion about the lifting of the restrictions in England.  The euro stood at $1.1789 rising off Wednesday’s 3 ½ month low of $1.1752 ahead of a closely watched European Central Bank policy decision later in the day. 

Bitcoin

Bitcoin dropped below $30,000 for the first time since 22 June.  Wednesday saw Bitcoin recovering from a one-month low and moving back above $30,000 suggesting firm support around that level.  Crypto currencies held gains after Tesla Inc CEO Elon Musk said the company would “most likely” resume accepting bitcoin for payment.

Oil

Monday’s selloff amid the rising COVID-19 cases pushed oil about 7% lower and hit other riskier assets.  The oil market was lower on news that the OPEC+ had reached a deal to boost supply in the coming months.  Brent crude settled up 1.1% at $69.35 a barrel on Tuesday after sliding 6.8% on Monday.  The global benchmark has dropped from a peak at more than $77 hit in early July-its highest since late 2018.  US crude ended up 1.5% at $67.42 in its final day of trading after hitting a low of $65.21 on Tuesday.  On Monday, the contract dropped 7.5%.   Oil majors such as BP and Royal Dutch Shell dropped more than 1.5% hit by a drop in crude prices after the agreement of OPEC+ agreed to boost output.  Crude oil futures rebounded on Tuesday as market participants moved into taking advantage of oil’s two-month low touched in the previous session. Oil prices rose more than 4% on Wednesday, extending the gains from the previous session amid improved risk appetite that provided support despite data showing an unexpected rise in US oil inventories. Brent crude futures rose 4.2% to settle at $72.23 a barrel while US West Texas Intermediate crude futures rose 4.6% to settle at $70.30 a barrel.  The price increase came about despite a rise in US crude stockpiles for the first time since May.  Crude inventories rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, showed the US Energy Information Administration.    

Gold

Gold prices eased on Wednesday and were on track for a second session of declines as a stronger dollar and rebound in US Treasury yields compete with the safe-haven status of the metal amid worries of the pandemic resurgence.  Spot gold dropped 0.3% to $1,805.60 per ounce and US gold futures slipped 0.4% to $1,804.30.  The US dollar was close to its year high and bonds rallied further on Wednesday as the rapid spread of the Delta variant displaced inflation as investors’ primary concern.  US benchmark treasury yields have rebounded from an over 5 month low reached in the previous session. 

Malta – Motor Vehicles 2nd Quarter 2021

In a press release dated 21st July, 2021 in the second quarter to 2021 the stock of licensed motor vehicles increased by 3,902 over the previous quarter.   At the end of June 2021, the stock of licensed motor vehicles stood at 408,205.  Newly licensed motor vehicles put on the road during the period under review amounted to 5,887.  Meanwhile, newly licensed ‘new’ motor vehicles amounted to 3,489 pr 59.3% of the total, whereas newly licensed ‘used’ motor vehicles totalled 2,398 or 40.7%.   An average of 65 motor vehicles per day were newly licensed during the quarter under review.  As at the end of June 2021, 241,609 motor vehicles or 59.2% of the total had petrol powered engines.  Diesel powered motor vehicles reached 156,365 or 38.3% of the total.  Electric and hybrid motor vehicles accounted for 2% of the entire stock with a total of 8,367 motor vehicles. 

Malta – Retail Price Index: June 2021

In a press release dated 22nd July, 2021, in June 2021 the annual rate of inflation as measured by the RPI was 1.47% up from 1.27% in May 2021.  The largest upward impact on annual inflation was measured in the Food Index (0.48%), whilst a downward impact was recorded in the Transport and communication index (-0.10%). The RPI measures 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 period rent payment adjustments.  A closely related measure of price movements is the Harmonised Index of Consumer Prices (HICP). 

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

July 23rd, 2021


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