“Eurozone Growth…”

The eurozone economy grew 2% in the second quarter, the European Union Statistics office said on Tuesday, as the easing of the coronavirus restrictions spurred economic activity after a brief recession.  The increase in gross domestic product by 2% compared to the previous quarter was paired with a 13.6% increase from the same period last year.  The annual GDP reading was slightly revised downward from the Eurostat’s earlier estimate of 13.7% growth released at the end of July.  The GDP growth led to a rise in employment in the April-June period with the indicator increasing 0.5% on the quarter and 1.8% on the year.  The annual growth was greater than the 1.5% rebound after a series of falls.  Despite the robust rebound in the second quarter, the eurozone economy remained some 3% smaller than it was at the end of 2019, unlike the US and Chinese economies, which have pulled above their pre-pandemic peaks.  Of the largest eurozone economies, Spain and Italy posted the largest GDP increases growing by 2.8% and 2.7% respectively.   Italy, the worst hit of the European countries last year grew in the first quarter of 2021, when the bloc’s GDP dropped.  Germany and France recorded more moderate GDP increases respectively of 1.5% and 0.9% on the quarter.  Available data from countries within the eurozone show that household spending was a major driver of growth in the second quarter, with figures released on Tuesday by the Netherlands indicating a nearly jump of 6% in consumer spending .  Trade is also a contributing factor to economic expansion,  In June eurozone exports of goods outside the bloc rose by more than 20% on the year to nearly 210 billion euros, said Eurostat last week.  

FED minutes

The minutes of the 27-28 July meeting released on Wednesday showed that FED officials saw the potential to ease bond-buying stimulus this year if the economy continues to improve as expected, however the condition of “substantial further progress” toward maximum employment had not yet been met.  The minutes showed FED officials largely expect that later this year they will reduce the central bank’s emergency monthly purchases of $120 billion of Treasury bonds and mortgage backed securities.  However consensus on other key issues appeared difficult, including the start date and pace of the bond-buying “taper” and whether the bigger risk to the recovery is posed by inflation, ongoing joblessness or the chance that a resurgent coronavirus may throw things into reverse.  As policymakers weighed on the spikes in prices against being “patient” with monetary policy so more hiring could take place, they also noted “the risks that rising COVID-19 cases associated with the spread of the Delta variant could cause delays in returning to work and school, and so dampen the economic recovery”.  The debate at the July meeting was complicated further by the discussion of a longer-term decision, that is when to raise the FED’s overnight benchmark interest rate from the current near-zero level.  Inflation has increased this year well above the FED’s 2% target, running at a 3.5% annual rate in June.  However, the economy remains 5.7 million jobs short of where it was before the pandemic.  With those core goals in conflict, the FED is trying to balance two monetary policy tools, bond purchases and interest rates, without losing control of inflation or curbing the recovery before the economy regains as many jobs as possible.  The minutes further said, “a couple of participants cautioned that it could be challenging for the public to disentangle deliberations about the two tools.”  “Several participants” said aggressive monetary policy was still needed to fix the damage done to the labour market by the pandemic, and felt ongoing bond purchases helped that process. “A few” countered that Fed policy had little left to contribute to a process driven by private business and household decisions. “Several” others said the condition of labour markets prior to the pandemic “may not be the right benchmark” given lasting changes to the economy.

UK inflation

British inflation cooled faster than expected in July as it slowed to 2% in annual terms from 2.5% in June, according to official data on Wednesday. 

UK Payrolls

The number of employees on British company payrolls has moved closer to pre-pandemic levels and pay growth has hit a record high although impacted by the effects of coronavirus lockdowns, official data showed on Tuesday.  As the UK economy extended its recovery from last year’s slump, payrolls increased by 182,000 in July to 28.9 million.  That is 201,000 lower than the level before the COVID-19 pandemic hit.  The Office for National Statistics also said the headline unemployment rate dropped to 4.7% in the three months to June, its lowest since the three months to August 2020. 

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits dropped to a 17 month low last week, pointing to another month of robust job growth, although the increase in the number of COVID-19 infections can lead to a risk to the labour market recovery.  Initial claims for state unemployment benefits dropped 29,000 to a seasonally adjusted 348,000 for the week ended 14^th August, said the Labour Department on Thursday.  This is the fourth straight weekly decline that pushed claims to their lowest level since mid-March 2020.  Claims have been decreasing, with employers hanging on to their workers amid a labour shortage as vaccinations allow the economy to fully reopen. More than half of the population has been fully immunized against COVID-19. About 8.7 million people were officially unemployed in July. The economy fully recovered the sharp loss in output suffered in the second quarter during the very brief pandemic recession.

China’s Economy

China’s factory output and retail sales growth slowed sharply and missed expectations in July, amid the resurgence of COVID-19 cases and floods that disrupted business operations.  Industrial production in the world’s second largest economy increased 6.4% year on year in July showed on Monday data from the National Bureau of Statistics (NBS).   Meanwhile, retail sales increased by 8.5% in July from a year ago, far lower than June’s increase of 12.1%.  China’s economy has rebounded from its pre-pandemic growth levels, however the expansion is losing steam as business deals with higher costs and supply bottlenecks.  New COVID-19 infection cases in July have also led to fresh restrictions disrupting the country’s factory output already hit by severe weather this summer.  Meanwhile, production controls sent crude steel output to the lowest monthly level since April 2020 in July.  China has tightened social restrictions so as to fight the latest COVID-19 outbreaks in some cities, hitting the services sector in particular travel and hospitality in the country. 

Market Wrap

A 10-day run of gains for European stocks came to a halt on Monday after a surprise slowdown in China’s economic indicators, with commodity-linked stocks dropping the most.  The pan-European STOXX 600 index dropped 0.5% to 473.45 easing from a record level reached last week. 

European stocks sank to their lowest in a week on Tuesday amid a spike in the COVID-19 cases in Asia and elsewhere raising fears of a slowdown in economic growth.  Tighter scrutiny of the Chinese internet sector, the nationwide lockdown in New Zealand and the movement restrictions in several Asian countries made investors edgy as European economies continue to recover from the pandemic-driven downturn.  Economically sensitive cyclical sectors such as oil and gas, travel and leisure, automakers and banks led to early declines.  China’s factory output and retail sales growth slowed sharply and missed expectations in July amid new COVID-19 outbreaks and floods that disrupted business operations. Luxury names such as LVMH , Gucci owner Kering and Cartier-maker Richemont which are exposed to China dropped by 2.1% and 4.6%.  German bond yields dropped alongside US treasuries to their lowest in over a week on Tuesday ahead of a US retail sales report.  Risk sentiment was also dampened by a further spike in Delta variant related COVID-19 cases and the uncertainty following the Taliban’s seizure of power in Afghanistan, with stock markets in Europe opening lower.  Germany’s 10-year yield, which is the benchmark for the bloc, dropped nearly 3 basis point to -0.496% in early trade, the lowest since 6^th August, tracking the US Treasury yields lower.  Italy’s 10-year yield was down similarly to 0.54%. 

European stocks inched higher on Wednesday after an unstable start to the week, as investors balanced the risks from a spike in global COVID-19 cases with signs of a steady economic recovery in the continent.  The CAC 40 dropped by 0.83% to close at 6,770.11, the DAX increased 0.28% to reach 15,965.97 whilst the FTSE 100 closed lower by 0.16% at 7,169.32.  Japanese shares bounced back on Wednesday led by gains in Fujifilm and other defensive stocks.  The Nikkei climbed 0.59% to 27,585.91 reversing its earlier losses when it hit its lowest levels since July.  The gains were led mainly by defensive shares while many cyclical shares slipped on continued worries that the spreading of the Delta variant could disrupt economic recovery both at home and abroad.  Asian stocks moved up from a three week low on Wednesday, but gains were capped by ongoing fears about the Delta variant which also caused New Zealand’s central bank to delay a previously expected rate hike.  Chinese blue chips were amongst the strongest gainers on Wednesday, rising by 0.86% with financial firms taking the lead but the risk on mood was across the board with Hong Kong up 0.73 and Korea up 0.89%.  Earlier in the day, the Reserve Bank of New Zealand delayed a widely expected rise in interest rates as policymakers shifted gears after the country was put in a COVID-19 lockdown over a handful of new cases, but the bank still expects a hike before year end.  Meanwhile in the US the Dow Jones Industrial Average dropped 1.08% to 34,960.69, the S&P 500 closed at 4400.27, lower by 1.07% and NASDAQ 100 dropped 0.97% by 14857.92. 

European shares dropped more than 1% on Thursday amid fears of a sooner than expected tapering in global monetary policy, while a slump in commodity prices led to mining stocks to a near one-month low.  The FTSE 100 dropped sharply on Thursday as the heavyweight mining and energy stocks followed a drop in commodity prices on signs of a slowing global economic growth. Asian stocks also slid earlier in the day to their lowest levels this year as the FED minutes gave the impression of a cut in the bond buying programme. 

Currency Roundup

Sterling slipped against the dollar and little changed against the euro on Monday as the risk appetite in the global markets is weak after economic data from the US and China raised concern about their recovery from COVID-19.  The dollar moved higher and riskier currencies generally lost out.  Against the yen sterling was down 0.6% having touched its lowest level in more than three weeks. 

Sterling hits its lowest level in the three weeks against the dollar on Tuesday as weakening risk sentiment weighed on global stock markets, hitting currencies such as Australian and Canadian dollar.  The pound hit its weakest level since 27 July falling 0.3% on the day to $1.3787.  Against the euro it was 0.3% lower at a two-week low of 85.35 pence.  After the decision by the Reserve Bank of New Zealand to delay a rise in interest rates,  the new Zealand dollar dropped to a nine-month low of $0.6868, climbing back to $0.6933 as investors looked into the projections showing policymakers still expect to raise rates over the coming months. 

Sterling traded near a 3 ½ week low on Wednesday after UK inflation data showed a sharper slowdown than expected.  The pound was little moved by the numbers, however, investors believe it had little bearing on the rising trend for inflation and the currency dropped on Tuesday after a rise in the dollar. 

The dollar rose to a nine-month high against its major peers on Thursday, on expectations that the Federal Reserve will start tapering its huge stimulus this year.  The dollar index that measures the US currency against six rivals, climbed as high as 93.502 its strongest since 5 Nov, before trading 0.26% higher at 93.464.  The euro dropped as low as $1.16655 for the first time since 4 November while the Australian dollar sank to $0.7198 a level not seen since 5 November.  Against the yen the greenback rose as Yen 110.225. 

Oil

Oil prices settled lower on Monday, pairing the steep losses from weak Chinese economic data.  Brent crude settled down 1.5% at $69.51 a barrel after earlier dropping $68.14.  US oil dropped by 1.7% to $67.29 after reaching lows of $65.73. US crude oil stockpiles dropped last week to their lowest levels since January 2020, said the Energy Information Administration on Wednesday.  Crude inventories fell by 3.2 million barrels in the week to 13^th August to 435.5 million barrels, exceeding estimates for a 1.1 million barrel drop.  Crude exports rose in the most recent week to 3.4 million barrels per day (bpd).  The IEA said, at Oklahama delivery hub crude stocks fell by 980,000 barrels in  the last week.  Inventories at the nation’s largest oil storage hub and delivery point for US crude futures have dropped for 10 straight weeks and are now at their lowest levels since October of 2018 at 33.6 million barrels.  Oil prices rose after the report showed the bigger-than-expected crude build. 

Gold

Gold prices moved higher on Wednesday amid concerns over the spread of the Delta variant uplifted by the gold’s appeal and as investors awaited the Federal Reserve latest policy meeting.  Spot gold was up 0.1% at $1,787.50 after hitting its highest since 6 August at $1,795.25 in the previous session.  Investor’s appetite for riskier assets was dented on worries about the Delta COVID-19 variant. 

Malta: Harmonised Index of Consumer prices – July 2021

In a press release dated 18^th August 2021, in July the annual rate of inflation as measured by the HICP was 0.3% up from 0.2% in June 2021.  The largest upward impact on annual inflation was measured in the Food and non-alcoholic beverages index, while the largest downward pressure was reported in Restaurants and hotels index.  The HICP measures monthly prices changes in the cost of purchasing a representative basket of consumer goods and services.  The HICP is calculated according to the rules specified in series of European Union regulations that were developed by Eurostat together with the EU member states. 

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