“Eurozone Factory Growth…”

Eurozone manufacturing activity expanded at its fastest pace on record, in June according to a survey on Thursday.  It also showed factories encountered the steepest rise in raw materials costs over two decades. IHS Markit final manufacturing Purchasing Managers’ Index (PMI) rose to 63.4 in June from May’s 63.1.  An index measuring output, which feeds into a composite PMI due on Monday and seen as a good guide to economic health, rose from May’s 62.2 to 62.6.  Anything above 50 indicates growth.  “Eurozone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with further relaxation of COVID-19 containment measures,” said Chris Williamson, Chief Business Economist at IHS Markit.  “However, the sheer speed of the recent upsurge in demand has led to a sellers’ market as capacity and transportation constraints limit the availability of inputs to factories, which have in turn driven industrial prices higher at a rate not previously witnessed by the survey”.  Meanwhile, due to a shortage of shipping containers and supply chains hugely impacted by the global pandemic, the input prices index soared to 88.5 from 87.1 by far the highest in the survey’s history. 

Eurozone Inflation

Inflation in the 19 countries sharing the Euro slipped to 1.9% in June from 2% in May right on the ECB’s target of “below but close to 2%”.  Consumer price growth has accelerated this year but mostly on one-off factors such as rebounding oil prices, a German tax hike and the statistical impacts of the COVID-19 pandemic.  These factors continue to push inflation higher and price growth is likely to peak above 2.5% towards the end of year according to ECB’s projections.  The ECB has been clear in his communication which has persistently undershot that this is not the sort of inflation that requires a policy response, so no tightening is on the cards and borrowing costs are set to stay ultra-low for the years to come.  Policymakers argue that higher commodity prices mask weak underlying trends and inflation for services and durable goods, more meaningful measures for Central Bankers, remain weak.   Meanwhile, core inflation or prices excluding volatile food and energy costs, held steady in June as expected at 0.9% while a narrower measure excluding alcohol and tobacco slipped to 0.9% from 1%.  The ECB sees inflation well below its target both next year and 2023. 

German Retail Sales

German retail sales rebounded in May as a gradual easing of COVID-19 restrictions supported consumer spending, showed data on Tuesday.  Retail sales rose 4.2% on the month in real terms after a downwardly revised decline of 6.8% in April, said the Federal Statistics Office.  The data is supporting expectations for a consumer driven recovery over the summer after the economy was hit hard by the lockdown measures.  On the year, retail sales, which is a volatile indicator often subject to revisions dropped 2.4% in real terms following an increase of 5.1% in the previous month.  The year-on-year figures showed that online retailers continued to benefit from shifting consumer habits with a strong jump in sales.  This came at the expense of clothing and shoe stores. 

UK Factories

Britain’s factories extended their post-lockdown recovery in June and increased hiring, however, they also faced record inflation pressures due to supply chain problems caused by the coronavirus pandemic, showed a survey on Thursday.  The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index dipped 63.9 from all-time high of 65.6 in May.  The pace of expansion in output, new orders, and employment remained among the highest of the surveys near 30-year history after COVID-19 restrictions in Britain and beyond were eased.  IHS Markit said that the combination of surging demand and lingering social-distancing requirements caused delays in supply chains and intensified inflationary pressures.  Average input costs rose at the fastest pace on record with prices rising for chemicals, electronics, energy, food products, metals plastics and timber. 

Bank of Japan

The Bank of Japan on Tuesday trimmed the amount of Japanese Government Bonds (JGB) it will purchase in the coming quarter and shifted its announcement to a quarterly schedule.  It stated that it would buy for the July-September quarter instead of for the following month as it has done in the past, fixing its bond buying amount for a longer period, rather than fine-tuning its operations to control bond yields.  In the past, the BoJ has actively changed the size and frequency of its bond purchases to warn against the 10-year JGB yield moving away from its 0% target.  It is holding almost half of all government bonds and remains by far the biggest buyer of JGBs even after it reduced the size of its buying in three maturity zones: 1-3, 5-10 and 10-25-year bonds from July.  In total, its monthly purchase of conventional JGBs will be cut by 250 billion Yen to 5.65 trillion Yen from June.

China’s Manufacturing

Growth in China’s June factory activity dipped to a four-month low on higher raw material costs, a shortage of semiconductors and a COVID-19 outbreak in the major export province of Guangdong. Furthermore, there is a wider supply chain disruptions in Asia.  The chip supply crunch has impacted other manufacturing powerhouses in Asia.  Industrial output in Japan and South Korea slumped in May from the previous month as auto production declined due to semiconductor shortages.  This adds to concerns of the flagging momentum in their respective economies.  China’s June official manufacturing Purchasing Manager’s Index (PMI) eased slightly to 50.9 versus 51.0 in May according to data from the National Bureau of Statistics.  It remained above the 50-point mark that separates growth from contraction on a monthly basis.  The soft factory activity data helped with the rebound in Chinese stocks on Wednesday, as it lessened the fears of policy tightening.  New export orders dropped for a second consecutive month in June and at a faster pace possibly due to the global resurgence of COVID-19 variants, forcing some countries to reimpose lockdowns.  Growth in new orders however, picked up as domestic demand improved.    

US Private Payrolls

US private payrolls increased solidly in June however, the pace of hiring slowed from the prior month as companies continued to find workers to meet surging demand as the economy reopens and gain momentum.  Private payrolls increased by 692,000 jobs last month, showed the ADP National Employment Report.   Data for May was revised lower to show 886,000 jobs added instead of the initially reported 978,000. More than 150 million Americans have been fully vaccinated against COVID-19, allowing authorities to remove pandemic-related restrictions on businesses and mask mandates for people who have been inoculated. The ADP report is jointly developed with Moody’s Analytics and was published ahead of the Labour Department’s more comprehensive and closely watched employment report for June on Friday. But it has a poor track record predicting the private payrolls count from the Bureau of Labour Statistics because of methodology differences.  The economy created 559,000 jobs in May. A shortage of willing workers is frustrating companies’ efforts to ramp up hiring. There were a record 9.3 million job openings as of April.  The precise cause of the labour crunch is often a political debate.  Economists generally point to several factors, among them the unusually generous unemployment benefits, including a weekly $300 subsidy from the federal government, that were part of the Biden administration’s pandemic relief package. 

Market Wrap

European shares ended lower on Monday with travel stocks leading the losses amid concerns on British tourists while a spike in Asian COVID-19 infections hit crude prices and saw energy stocks tumble more than 2%.  The Times reported that Germany was considering a ban on British travellers to the European Union, regardless of their vaccination status, because of the highly contagious widespread Delta variant of the coronavirus. Hong Kong has also announced a ban on all passenger flights from the UK, starting this week due to similar concerns.  Germany’s DAX index ended 0.3% lower, while the British blue-chip stocks dropped 0.9%.  Meanwhile, energy stocks dropped 23% with oil prices dropping as a spike in Asian infections of the Delta variant threatened to damage demand.  The renewed concerns over the coronavirus have kept markets off record highs.  Technology stocks climbed 0.4% amid were among the few gainers for the day as investors shifted to pandemic-resistant sectors. 

The tech-heavy NASDAQ was the stand-out mover as June draws closer to its end up 5.6% so far and set for its best monthly run since November last year.  Whilst travel and cyclical stocks have felt the heat, the combined market cap of the five biggest US Tech, Google, Amazon, Facebook, Apple, and Microsoft has climbed closer to $9 trillion which is about 35% of nominal GDP. 

Eurozone government bonds steadied on Wednesday as investors awaited the release of economic data which could add to the debate about Central Bank’s tapering.  Markets were waiting for the flash Eurozone inflation numbers on Wednesday and the US non-farm payrolls report on Friday.  There were also concerns about the economic impact of a possible new wave of the pandemic as the Delta variant spreads.  Germany’s 10-year government bond yield, which is the benchmark of the Euro area dropped 0.5 basis points to -0.18%.  On a different note, the French preliminary EU harmonised CPI rose 1.9% year-on-year in June, meeting analyst expectations. Italy’s 10-year government bond yield rose 0.5 basis points to 0.88%.  Meanwhile Portuguese bonds are slightly underperforming with its 10-year yield up 1.5 basis points at 0.44%.  The MSCI global share index hovered near record highs and Asian shares rose on Wednesday after strong consumer confidence lifted U.S. shares, however investor’s concern ahead of the US jobs data and around the rising virus capped gains.  European shares were set for a lower open. The MSCI’s global share index was flat set for a fifth straight month of gains a day after hitting an all-time high. MSCI’S index tracking Asian shares outside Japan was set for a small monthly loss, but still on course for a fifth straight quarterly rise, its longest such streak since 2006-2007.

European shares dropped on Wednesday on worries about rising inflation and the Delta variant hitting economically sensitive sectors, even as technology stocks tracked an overnight surge in US tech stocks to record highs.  Automobile stocks were the worst performers of the day shedding 1.9%.  But the sector is ahead of its peers this year with a more-than 25% jump.  Healthcare stocks were the best performers in June adding 6.7% while expectations of recovering demand saw retails stocks outpace their peers through the quarter to June with a near 12% increase. 

Stocks made a turning start to the second half of 2021 on Thursday, dipping in Asia over worries about new coronavirus infections and fresh lockdowns, while bond markets were on edge and the Dollar moved higher ahead of US labour data. Meanwhile equity futures pointed to a small bounce in Europe after a month-end selloff, with the Euro Stoxx 50 futures up 0.4% while FTSE futures rose 0.1% and the S&P 500 futures moved to higher levels and were last up about 0.15%.    In Asia, Japan’s Nikkei dropped 0.3% and the MSCI’s broadest index of Asia Pacific shares outside Japan dropped 0.4%.

Currency Roundup

Tuesday saw the Sterling sinking to its lowest in over a week against the Dollar with the British currency on track for its worst month since September. A broad strengthening in the Dollar in recent weeks after a surprise hawkish shift by the U.S. Federal Reserve has brought some volatility back to currency markets, while also toppling Sterling from levels near three-year highs. Sterling traded between $1.38 and $1.40 amid the spread of the delta variant of coronavirus in Britain, which has forced the government to delay the final phase of reopening the economy.  Prime Minister Boris Johnson said on Monday that Britain was on course to be able to lift most remaining COVID-19 restrictions on July 19. Sterling was 0.4% lower to the Dollar at $1.3821, after hitting its lowest since 21^st June 2021, at $1.3814. The currency was set for a 2.4% loss against the Dollar this month.  Against the Euro, the Pound traded flat at £0.8592p.  The Canadian Dollar weakened on Tuesday for a second day against with its broadly stronger US counterpart as new coronavirus outbreaks in Asia pressured commodity-linked currencies and investors waited for key economic data later in the week.  The Australian and New Zealand Dollar which are also sensitive to commodity markets dropped, while the safe-haven U.S. Dollar climbed against a basket of major currencies.

China’s Yuan edged up on Wednesday amid tighter cash conditions however a rebound in US Dollars has set the currency for its biggest monthly drop since August 2019.  Prior to the opening of the market, the People’s Bank of China (PBOC) set the midpoint rate at 6.4601 per Dollar, 34 pips weaker than the previous fix of 6.4567.

The Dollar hit a fresh 15-month high versus the Yen and traded near multi-month peaks against other major peers on Thursday, ahead of key US jobs report that could offer clues on when the Federal Reserve will start to trim off stimulus.  The US currency rose as high as Yen 111.165 for the first time since 26^th March before trading essentially flat compared to Wednesday at 111.095. The Euro edged down to $1.1851 after dipping as low as $1.1845 on Wednesday for the first time since April 6. Safe-haven assets including Treasuries, the Dollar and the Yen have been supported by the spread of the highly contagious Delta variant of the COVID-19 which is threatening the global reopening. 

Oil

Oil prices steadied on Tuesday as hopes of a demand recovery persisted, fuelled by comments from OPEC’s secretary general that slightly overshadow the travel curbs due to new outbreaks of the Delta variant.  Brent crude LCOc1 futures settled 0.1%, at $74.76 a barrel, having dropped by 2% on Monday.  U.S. West Texas Intermediate (WTI) crude CLc1 futures increased by $0.07c, or 0.1%, at $72.98 a barrel, after a 1.5% retreat on Monday.   OPEC Secretary General Mohammed Barkindo said during a meeting of the Joint Technical Committee of OPEC+ (an alliance made of OPEC states, Russia, and their allies), that demand in 2021 was expected to grow by 6 million barrels per day (bpd) with 5 million bpd of that in the second half.  OPEC’s demand forecasts show that in the fourth quarter global oil supply will fall short of demand by 2.2 million bpd, giving the producers some room to agree to add output.

Gold

Gold traded around an over two-month low on Wednesday as investors awaited US jobs data for further clarity on the Federal Reserve’s policy stance. The drop in price of gold is its worst monthly drop since November 2016.  Spot gold eased 0.1% to $1,759.48 per ounce having touched its lowest since 15th April at $1,749.20 on Tuesday.  Gold prices are down 7.7% for the month, weighed down by the FED’s sudden hawkish shift.  Meanwhile on the quarter they are 3% up.  

Malta:  Industrial Producer Price Indices -May 2021

A press release dated 30th June from the National Statistics office, shows that when compared to May 2020, the industrial producer price index increased by 1.73%. Consumer goods, intermediate goods and capital goods rose by 2.59%, 2.21% and 0.37% respectively.  No price change was registered in the energy sector. Industrial producer prices for the domestic market increased by 1.11%.  Price increases were recorded in intermediate goods and consumer goods while capital goods dropped by 0.53%.  Non-domestic prices increased by 2.12%.  Prices within the Euro area climbed 5.95% while those within the Euro-area increased by 0.18%.  Meanwhile during May 2021 the industrial producer price index increased by 0.55% when compared to April 2021.  Increases were registered in intermediate goods and consumer goods.  Capital goods dropped by 0.04%.  Meanwhile there was no price change in the energy sector. 

Malta:  Unemployment Rate – May 2021

A press release dated 1^st July 2021 shows that the monthly unemployment rate was 3.7%.  For the month under review, the unemployment rate for males was 3.7% while the rate for females stood at 3.6%. 

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