“Eurozone Business Growth…”

Eurozone business growth ground to a halt this month amid a renewed downturn for the service industry impacted by a resurgence in the coronavirus cases that pushed governments to reintroduce restrictions and citizens to stay at home according to a survey. The renewed downturn in services more than offset the strongest manufacturing growth in two years. As the numbers of cases of coronavirus started rising again in key economies and governments had to revert to partial restrictions, the IHS Markit’s Flash Purchasing Manager’s Index dropped to 50.1 in September from 51.9 in August. This was just above the 50-mark separating growth from contraction. Meanwhile a flash PMI for the bloc’s dominant service industry plummeted to 47.6 this month from 50.5 significantly below the breakeven mark.  As demand dropped and some of the activity coming from running down backlogs of work, the services firms cut staffing levels for a seventh month. Manufacturers did much better, with the factory PMI rising to a just over two-year high of 53.7 from 51.7. Factories have also cut headcount despite a surge in demand to its highest since February 2018. 

Business Morale in Germany and France

Business Morale in Germany and France improved for the fifth month in a row in September boosted by hopes that these two economies had enjoyed a solid recovery from the pandemic shock suffered in the first half of the year. The surveys were published on Thursday by Germany Ifo institute and France’s statistics office, that suggested that the two countries are set for a strong growth  in the third quarter, despite a gloomy outlook by rising infections and new restrictions to contain the spread of the COVID-19 pandemic.  The Ifo institute said its business climate index rose to 93.4 from a downwardly revised 92.5 in August.  This was the highest reading since February, when the index stood at 95.9.  The Germany economy has contracted by 9.7%  in the second quarter amid a collapse in household spending, company investments and trade. The government has since March engaged in rescue plan and stimulus measures, financed with record new borrowing. The survey further showed that business morale in manufacturing improved considerably on upbeat export expectations. In the services sector however, sentiment dropped for the first time in five months as morale in tourism and hospitality deteriorated due to rising infections in recent weeks. Meanwhile in France the business confidence index rose to 92 from August’s 90, reaching its highest level since February before France went in a two-month lockdown.  The index for the industrial sector improved particularly sharply jumping to 96 from 92. The index for the bigger services sector climbed 95 from 93. The improvement comes even though the French government had to increase restrictions on gatherings as the number of new COVID-19 cases surged to record levels. 

US Business Activity – September

US business activity dropped in September with the gains at factories which were offset by a pull back at services industries, suggesting a loss of momentum as the coronavirus pandemic persists. IHS Markit said on Wednesday that its flash US Composite PMI Output Index, that tracks the manufacturing and services sectors, slipped to a reading of 54.4 this month from 54.6 in August. A reading above 50 indicates growth in the private sector output.  Although the private sector continues to expand, this month’s dip in the index support expectations of receding in economic momentum as the boost from fiscal stimulus ebbs. Gross domestic product is expected to rebound at a record 32 % annualised rate in the third quarter after tumbling at a 31.7% rate in the April-June period, the worst performance since the government started keeping records in 1947. Five years of growth have been wiped out due to the coronavirus pandemic. Six months after the COVID-19 pandemic started in the US the coronavirus cases have remained high with the death toll exceeding 200,000 on Tuesday. This is by far the highest number of any nation.  The survey’s services sector flash PMI fell to 54.6 this month from a reading of 55.0 in August.  The services industry has been badly hit by the virus and remains below its pre-pandemic level. A measure of the service industry employment slipped this month.  Meanwhile, manufacturing firms signalled an acceleration in activity. The flash manufacturing PMI increased to 53.5 this month from 53.1 in August. A measure of new orders received by factories edged down to a reading of 54 from 54.1 in August.

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits unexpectedly increased last week. Initial claims for state unemployment benefits totalled a seasonally adjusted 870,000 for the week ended 19 September, compared to the prior week, said the Labour Department on Thursday. Claims are above their 665,000 peak during the 2007-2009 Great Recession, however applications have dropped from a record 6.6867 million at the end of March. Although as business reopened In May boosting activity, demand in the services industry has remained dull. The number of layoffs remained high.  Job cuts has also spread to industries such as financial services and technology that initially were not affected by the business closures in mid-March due to insufficient demand. 

Market Wrap

European stocks posted their worst drop in three months on Monday as fears of a second wave of COVID-19 infections affected travel and leisure shares. Meanwhile, banks tumbled due to a report about $2 trillion worth of suspect transfers of leading lenders.  London’s FTSE 100 was the worst hit blue chip index in Europe, dropping 3.4% in its worst day in more than three months. The pan-European STOXX 600 was down 3.2%.  Europe’s travel and leisure index fell 5.2% its worst two-day drop.  On Wall Street the banking sector fell 4.2% amid a broader market selloff. European stocks bounced on Tuesday after a sell-off in the previous session, as technology and healthcare stocks gained, however, worries about coronavirus restrictions in Britain and other places kept travel stocks under pressure. The pan-European STOXX 600 index climbed 0.8% recovering from its worst drop in three months, with technology stocks that have outperformed this year rising 1.6%. As the number of cases increased rapidly in the UK, Prime Minister Boris Johnson is set to announce new restrictions that include closing pubs, bars, restaurants and other hospitality venues at 10 pm across England. Travel & leisure stocks .SXTP fell 0.5%, adding to a 5.2% drop in the previous session, with surging COVID-19 cases across Europe threatening to hamper travel demand again.  Italy’s borrowing costs dropped on Tuesday towards their lowest levels in seven months due to a perceived reduction in political risk as the right-wing opposition leader Matteo Salvini failed to make the breakthroughs he hoped for in regional elections. The results of the 20-21 September vote which was released late on Monday, were a boost to the fragile coalition government which is battling with the economic slump sparked by the coronavirus. Italy’s 10-year bond yield was last down 2.5 basis points at 0.92%  hovering near a seven-month low reached on Monday at 0.9 %. The closely watched 10-year yield gap over the safe-haven Germany reached around 143 basis points, having tightened to one-month lows late the previous session. Meanwhile, Germany’s benchmark 10-year bond yield was steady at -0.52% not far off from Monday’s six week low of -0.54%.  On Wednesday Italy’s 30-year bond yield dropped to a record low supported by local election results that reduced the likelihood of a snap national election. The general focus was on weak business activity readings across the eurozone. Asian shares dropped on Thursday set for their worst day in two months amid warnings from the US Federal Reserve officials underscoring investor worries over the resilience of an economic recovery from the pandemic. The drop in the European markets was set to continue as the German DAX futures lost 1.48%, the FTSE Futures dropped 1.24% in early trades.  US Federal Reserve Vice Chair Richard Clarida said on Wednesday that the US economy remains in a “deep hole” of joblessness and weak demand, and called for more fiscal stimulus, noting that policymakers“ are not even going to begin thinking” about raising interest rates until inflation hits 2%. MSCI broadest index of Asia-Pacific shares outside Japan slumped 1.93% in the afternoon session on broad losses across the region, putting it on track for the biggest daily drop since 16 July. Chinese blue-chips .CSI300 dropped 1.6%, Hong Kong’s Hang Seng .HSI fell 1.7%, Seoul’s KOSPI .KS11 sank 2.59% and Australian shares .AXJO fell 0.81%. U.S. stocks fell on Wednesday after data showed business activity slowed in September. 

Currency Roundup

The yuan edged higher on Tuesday despite a weaker than expected official midpoint rate and the US dollar’s rebound in global markets as some investors were encouraged by recent economic data showing China recovering from its virus-induced slump. Sterling recouped losses after slipping to two-month lows against the dollar on Tuesday, as the British Prime Minister Boris Johnson is prepared to impose new restrictions to tackle a second wave of the coronavirus outbreak. After sliding as low as 1.2714 against the dollar on Tuesday, sterling recovered as much as 0.08% to $1.2826.  Against the euro the pound stood at 92 pence. Sterling recovered after Bank of England Governor Andrew Bailed warned of the escalating coronavirus cases that reinforced the downside risks in his latest forecasts for the economy on Tuesday as he continues to consider whether negative rates would be effective in Britain. Meanwhile the British government is attempting to pass a bill through Parliament that would allow it to break its Withdrawal Agreement with the European Union. The dollar held on to the sharp gains on Tuesday amid virus fears and worries of over delays in fresh US stimulus that drove a wave of selling in just every other asset market. Against a basket of six major currencies the dollar held at 93.519 just below a six-week high hit on Monday. The Japanese yen that fell from a six-month peak as the greenback gathered pace edged up to 104.57 per dollar. The Australian dollar recovered from a dip when a senior central banker mentioned the option of negative rates as a policy option in a speech to trade steady at $0.7223.  The dollar gained ground  on Tuesday as investors sought safety for the second day in a row while they eyed new restrictions aimed at curbing the surge in coronavirus cases in Europe, the tensions between the US-China and Washington’s lack of progress on reaching a fiscal stimulus agreement. The euro dropped to a two-months low on Wednesday as positive US economic data and worries over a second wave of coronavirus infections pushed the US Dollar higher.  The dollar is likely to continue to raise as the coronavirus rattles sentiment in Europe, however uncertainty about this year’s US presidential elections could boost volatility.  Sterling fell to $1.2692, its lowest since late July, after British Prime Minister Boris Johnson introduced on Tuesday new restrictions on business activity to fight a second wave of the coronavirus. Against the Swiss franc the dollar was stable at 0.9201 after a 0.6% gain from Tuesday when the greenback bolstered by data showing US home sales surged to their highest level in nearly 14 years in August. The dollar expanded to its eight-week high on Wednesday as US equities dropped and investors are worried about the pace of the global economic recovery rising coronavirus infection and weak economic data in Europe. 


On Monday oil prices dropped around 5% amid rising coronavirus cases that increased worries about a cut in global demand and renewed doubt over economic recovery. Furthermore, a potential return of Libyan production bolstered fears of oversupply. Brent crude settled down by 3.96% at $41.44 a barrel whilst US crude dropped 4.38%  to $39.31 a barrel. Both prices were set for their biggest daily drops in two weeks. Oil steadied on Wednesday trading close to $42 a barrel with a report that US crude inventories unexpectedly rose capping prices as growing numbers of coronavirus cases around the world raised concern of stalling demand. The American Petroleum Institute an industry group, said that crude inventories rose by 691,000 barrels. Brent crude rose 0.6% to $41.95 reversing an earlier drop whilst U.S. West Texas Intermediate crude was up 0.3% at $39.93. Both contracts fell more than 4% on Monday, though they rose on Tuesday. The number of increasing infections in countries including India, France and Spain and new restrictions in Britain have renewed the concerns about demand, just as more supply may come from Libya. In the United States, the COVID-19 death toll has passed 200,000. OPEC is facing a new challenge in that Libya, an OPEC member exempt from the supply cut, is aiming to boost supply amid an easing of the country’s conflict.

Malta:  Retail Price Index – August 2020

A press release by the NSO on 23rd September shows that in August 2020 the annual rate on inflation as measured by the Retail Price Index (RPI) was 0.42% down from 0.62% in July 2020.  The largest upward impact on annual inflation was measured in the Food Index, while the largest downward impact was recorded in the Transport and Communication Index. The retail price index 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 the periodic rent payment adjustments. 

Malta:  International Economic and Financial Transactions Q2/2020

In a press release dated 22nd September the NSO provisional figures for Malta’s external transactions show that during April-June 2020, a deficit of EUR 352.3 million was recorded in the current account when compared to a surplus of EUR 235.6 million in the comparable quarter of 2019. This deficit was mainly the result of a drop of EUR 631 million recorded in the services account mainly due to the travel ban imposed in the second quarter of 2020. During the second quarter of 2020, the capital account registered a positive net balance of EUR 23.4 million when compared with a positive balance of EUR 34.9 million in the corresponding period in 2019. Meanwhile, the financial account was shaped by a negative net asset balance of EUR 90.7 million, that represented a drop in the balance of net assets of EUR 696.8 million over the same quarter in 2019.  This development in the financial account balance was mainly brought about by negative net asset balances in direct investment (€2,424.5 million) and other investment (€296.7 million). A negative net asset balance of €16.4 million during the same period was recorded in the financial derivatives liabilities. This was partially offset by positive net asset balances in portfolio investment (€2,633.5 million) and reserve assets (€13.4 million). 

Antonella Mercieca

Client Relationship Manager


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


September 25th, 2020

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