“Eurozone Inflation…”

A sharp increase in energy prices and more expensive services boosted consumer inflation in May, according to data on Thursday, taking the rate of price growth above the European Central Banks target.  Eurostat, the European Union’s statistics office confirmed that inflation in the 19 countries sharing the Euro rose 0.3% month-on-month for a 2% year-on-year increase.  The ECB wants to keep inflation below however close to the 2% target.  Energy prices added 1.19% to the overall year-on-year figures and services 0.45%, while food, alcohol and tobacco added 0.15%.  Without the most volatile components of energy and food, or as called by the ECB core inflation, prices rose 0.2% on the month and only 0.9% year-on-year.  The ECB believes the surge in inflation is temporary and has promised to keep the monetary policy loose because the drivers of price growth will fade early next year, and inflation will be below target for the years to come. 

UK inflation

British inflation jumped unexpectedly above the Bank of England’s 2% target in May as it hit 2.1% and set to increase further as the country re-opens.  The rise in the price growth from April’s 1.5% was driven in large part by the comparison with prices in May 2020 when the country was in its first tight lockdown, especially for clothing, motor fuel, games, and take-away food.  Sterling was little changed by the ONS figures. The BoE said it expects inflation to hit 2.5% by the end of this year as the economy reopens after its coronavirus lockdowns and as global oil prices rise. Core inflation, which excludes the price of food, energy, and other volatile items, rose to 2.0% in the 12 months to May, said the Office for National Statistics. Governor Andrew Bailey and most colleagues say the increase in inflation will be temporary and does not require the Central Bank to scale back its huge stimulus programmes. It is expected to leave policy unchanged until the 24^th June after its latest meeting.

Federal Reserve Meeting

The Fed’s tone on tightening its pandemic-era policy was notably different from the European Central Bank’s stance last week, when it said it was too early to debate closing the money taps despite a recent rise in inflation.  On Wednesday, the FED began closing the door on its pandemic-driven monetary policy as officials projected an accelerated timetable for increases in interest rates, opened talks on how to end the crisis-era bond-buying and said that the 15-month-old health emergency was no longer a core constraint on US commerce.  Indicating that broad changes in policy may happen sooner than expected, US Central Bank officials moved their first projected rate increase from 2024 to 2023.   Speaking after the release of the Central Bank’s latest policy statement and economic projections, FED Chair Jerome Powell said there had also been initial discussions about when to pull back on the FED’s $120 billion monthly bond purchases, a conversation that will continue in the coming months as the economy continues to heal. Powell’s comments and the new FED policy statement marked a strong vote of confidence that the US economy is on track.  This week’s meeting is a turn away from the crisis policies the FED has pursued since the onset of the pandemic. Powell declined to offer guidance on the timing for any future policy shift, emphasizing that more economic data needs to be in hand.  The FED now expects the economy to grow 7% this year. 

US Retail Sales

US retail sales dropped more than expected in May, with spending shifting back to services as vaccines allow Americans to travel and engage in other activities that previously were restricted due to Covid.  Other data on Tuesday showed an acceleration in producer prices last month as supply chains struggle to meet demand that is being unleashed by the reopening of the economy. In addition to vaccinations, demand is also increasing as it found support from the trillions of Dollars from the government and record-low interest rates. Retail sales dropped 1.3% last month as declared by the Commerce Department.  Data for April was revised higher to show sales increasing 0.9%.  Meanwhile, retail sales surged 28.1% on a year-on-year basis.  During the pandemic, demand shifted to goods like electronics and motor vehicles as millions of people worked from home switching to online classes and avoiding public transportation.  More than half of eligible Americans have been fully vaccinated boosting the demand for air travel, hotel accommodation, dining out and entertainment among other activities.   Restaurants and bars are the only services category included in the retail sales report. May’s decline in retail sales was also due to a drop in receipts at auto dealerships. This reflected tight motor vehicles supply as a global semiconductor shortage hampers motor vehicle production.  Sales at building material stores tumbled 5.9% and online retail sales slipped 0.8%. Sales at clothing stores rose 3.0%.  Consumers also increased spending at restaurants and bars, leading to a 1.8% rise in receipts. Sales at restaurants and bars are 70.6% higher compared to May 2020.  Excluding automobiles, gasoline, building materials and food services, retail sales fell 0.7% last month after a revised 0.4% decrease in April. These so-called core retail sales correspond most closely with the consumer spending component of Gross Domestic Product. Goods account for about 41% of consumer spending, with services making up the rest. As such, consumer spending likely remained robust in the second quarter, powering economic growth.  Though the boost from stimulus checks is fading, consumers have saved at least $2.3 trillion in excess savings during the pandemic, which is expected to drive spending this year and beyond. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 11.3% annualized rate in the first quarter. Another quarter of strong growth is anticipated, and most economists are forecasting double-digit GDP growth in the second quarter.

Japan Exports

Japan’s exports rose at the fastest pace since 1980 in May.  A key gauge of capital spending grew, helping the world’s third largest economy offset sluggish domestic demand as COVID-19 vaccines boost business activity in key markets.  The increase in exports mainly reflect a rebound in shipments from last year’s pandemic driven plunge.  The solid data will likely bolster the view that the Central Bank will stick with its ultra-easy policy at its 17^th-18^th policy meeting, however, it may extend pandemic-relief programmes to back a fragile economic recovery.  The government recently extended coronavirus emergency curbs in Tokyo and other major areas.  The Ministry of Finance data on Wednesday showed exports grew 49.6% year-on-year in May versus a 51.3% increase led by US car shipments.  The jump followed a 38% increase in April and marked the sharpest monthly increase since April 1980, when shipments surged 51.4%.  Exports to China, Japan’s largest trading partner, grew 23.6% led by chip production equipment, hybrid cars and scrap copper, trade data showed.  Meanwhile exports to the US, another key market for Japanese goods, jumped 87.9% in May, a record for year-on-year growth according to comparable data going back to January 1980, driven by cars and auto parts.  Separate data by the Cabinet Office showed core machinery orders, which serve as a leading indicator of capital expenditure in the coming six to nine months, rose 0.6% in April from the previous month.

EU and US agree to talk on Carbon border tariff

The United States and EU are the world’s second- and third- biggest emitters of CO2, respectively, after China.  On Tuesday, the US and the EUR agreed to hold talks on the bloc’s planned carbon border tariff said Ursula von der Leyen.  This could possibly take place at the World Trade Organisation.   Joe Biden, Ursula von der Leyen and Charles Michel met for a summit tackling issues from trade to the COVID-19 pandemic.  Other issues covered included climate change policy including the EU’s plan to impose carbon emissions costs on imports of goods, including steel and cement, which the Commission will propose next month. Von der Leyen said after the summit, “I explained the logic of our carbon border adjustment mechanism”.  “We discussed that we would exchange on it. And that WTO might facilitate this,” she said.  Brussels and Washington are keen to revitalise transatlantic cooperation on climate change, after four fractious years under former president Donald Trump.  On Tuesday, they outlined plans for a transatlantic alliance to develop green technologies and said they will coordinate diplomatic efforts to convince other big emitters to cut CO2 faster.  However, the EU border levy could still cause friction. A draft of the proposal said it would apply to some U.S. goods sold into the EU, including steel, aluminium, and fertilisers.  According to Brussels the policy is needed to put EU firms on an equal footing with competitors in countries with weaker climate policies, and that countries with sufficiently ambitious emissions-cutting policies could be exempted from the fee.

Market Update

European shares ended at a record high on Monday as energy stocks surged amid a surge in oil market, while expectations of accommodative monetary policy grew as the global economic recovery picked up speed.  The pan-European STOXX 600 rose 0.2% to a record high close of 458.2 points.  Energy stocks were the best performers surging 2% as oil prices surged to an over two-year peak on expectations of strong global demand this year.  Germany’s DAX came off a record high, while UK’s FTSE 100 moved to its highest level since February 2020, however trimmed some gains as investors awaited an update on the UK’s lockdown measures.  This week all eyes were on the US Federal Reserve’s policy meeting with the bank expected to maintain a dovish stance.  Italy’s stock index rose 0.2% while its 10-year sovereign bond yield sank to an eight-week lows on continued dovish signals from the ECB. 

European shares rose for an eight-straight session on Tuesday driven by optimism over an economic recovery this year, however gains were limited as investors awaited the outcome of the FED’s policy meeting.  The dovish signals from the European Central Bank on tightening policy have brightened the near-term outlook for risk-driven assets in the continent, along with continued hopes that the steady vaccination program will be driven by an economic recovery this year.  Germany’s DAX ended just below all-time highs as data showed consumer prices rose 0.5% month-on-month in May, in line with economists’ expectations.  Investors will also be looking for inflation data from across the Eurozone later in the week.  Insurance stocks were among the best performing sectors for the day, while the basic resources stocks stumbled tracking a drop in base metal prices.  Travel and leisure stocks dropped more than 2% after the UK Prime Minister Boris Johnson delayed his plans to lift the remaining COVID-19 restrictions in the country.  The London’s FTSE 100 gained 0.4% as the UK posted a record jump in the number of employees on the company’s payrolls in May as the COVID restrictions were eased. 

London’s FTSE 100 index edged higher on Wednesday lifted by gains in the heavyweight financials and energy stocks, while data showed inflation jumped past the Bank of England’s target as the UK emerges from the third national lockdown.  The FTSE 100 closed 0.17% higher marking 7,184.95.   Life insurers and banks provided the biggest boost to the index.  European shares closed at a record high on Wednesday despite investors being cautious ahead of the FED’s meeting.  The CAC 40 increased by 0.2% to 6,652.65 while the DAX dropped 0.12% to reach 15,710.57. Europe saw travel and leisure stocks rising 1.3% after steep losses on Tuesday, while utilities added 1%.  The Dow Jones Industrial Average dropped by 0.77% reaching 34,033.67.  Similarly, the NASDAQ 100 and the S&P 500 dropped by 0.34% and 0.54 reaching 13,983.01 and 4223.7, respectively. 

European shares pulled back from record highs on Thursday, tracking overnight declines on Wall Street after the FED surprised investors by indicating it could start tapering its massive stimulus sooner than expected. 

Currency Roundup

The Pound fell to a one-month low against the Dollar on Tuesday in what analysts said was the breaking of a technical level that did not change the bullishness on the British currency. Sterling had held firm above $1.41 earlier in the session, showing no reaction to news that Britain was to delay its reopening from COVID-19 lockdown restrictions by one month due to the rapid spread of the more infectious Delta variant. Currency markets were generally quiet ahead of the U.S. Federal Reserve meeting, which ended on Wednesday.  Sterling rallied at the start of the year, as the UK was initially ahead of its peers in the roll-out of COVID-19 vaccines. In May, it reached a three-year high of $1.425. The Dollar edged higher to a one-month high against a basket of currencies on Tuesday, as data showed inflation speeding up, and as traders awaited the Federal Reserve’s two-day policy meeting for hints of plans to start tapering its bond purchases. 

The Dollar held near a one-month high against a basket of currencies on Wednesday as investors tried to ascertain if the Federal Reserve might change the language on its stimulus following a recent jump in U.S. inflation.   Euro stood at $1.2126 little changed on the day but struggling to recover from its fall last week after the ECB pledged to keep stimulus steady over the summer.  The yen was flat at 110.08 yen per Dollar near its two-month low of 110.325 touched earlier this month, with the Bank of Japan expected to extend some of its pandemic relief measures this week.  After the FED meeting the Dollar jumped to a near six-week high as projections were brought forward for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a long-standing reference that the crisis was weighing on the economy.   Australian Dollar lacked traction after the country’s central bank signalled on Tuesday its willingness to extend its bond purchase programme next month.  Sterling strengthened against the Dollar on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England’s 2% target in May, raising some concerns that policymakers may start indicating a shift in policy thinking if prices shoot up further. Against a broadly steady Dollar, the British Pound rose 0.2% to $1.4112, concentrating on a 2021 high of $1.4250 hit at the start of June. Against the Euro, the British currency rose 0.25% to 85.94 pence. While the rise in inflation is largely driven by local factors, the BoE will be watching whether a stronger currency will help ease price pressures. The British currency is one of the best performing currencies versus the Dollar this year with a net 3.3% rise so far in 2021. Sterling has staged an impressive rally from a 35-year trough it reached in March 2020 at $1.1413 and is about 6% below the $1.5022 level it recorded before Britain’s June 23, 2016, vote to leave the European Union.

Bitcoin

In crypto markets, bitcoin traded at $40,305, having hit a near one-month high of $41,341 on Tuesday, aided by the promise of fresh investment from major backer MicroStrategy and the upbeat tweet from Tesla boss Elon Musk.  Ether had less momentum, at $2,561.  On Wednesday bitcoin appeared to run out of stream as it dropped 2.75% to $39,078.38. 

Oil

Tuesday saw brent crude rising 1.1% at $73.64 a barrel while US oil gained 1.2% to $71.76 a barrel.  Prices were buoyed by expectations of demand recovering rapidly in the second half of 2021.  OPEC+ producers have been gradually relaxing record output curbs in recent months. European shares rose on Wednesday as energy stocks tracked a jump in oil prices, while investors turned to the Federal Reserve meeting for cues on whether the central bank was beginning to debate tapering its ultra-monetary policy. The pan European Stoxx index has scaled record highs this year as investors bet on a steady vaccination programme that helps to jumpstart economic growth, but a recent jump in inflation has sparked concerns of a sooner-than-expected tightening of global monetary policy.  In London’s commodity-heavy FTSE 100 rose 0.3% with oil majors BP and Shell tracking the jump in Brent crude to its highest since April 2019.  Oil prices Wednesday rose for a fifth day closing in on $75 a barrel as US refiners drew more crude inventories to ramp up activity and meet the recovering demand.  Brent crude gained 0.5% to hit $74.39 a barrel reaching its highest since April 2019 and continue its gains to five straight days.  US crude rose to $72.15 after reaching $72.99, the highest since October 2018.  Brent has risen 44% this year, supported by supply cuts led by the Organization of the Petroleum Exporting Countries and allies (OPEC+) and the recovery in demand. OPEC+ has reduced last year’s historic supply cuts, but it is still withholding millions of barrels of daily supply from the market.

Gold

Gold steadied and moved in a narrow range on Wednesday as investors awaited the outcome of the US Federal Reserve’s latest meeting for clues on possible tapering of economic support measures, while a stronger Dollar weighed on the metal.  Spot gold was flat at $1,859.32 per ounce dropping to its lowest since 17^th May at $1,843.99 on Monday.  US gold futures rose 0.2% to $1860.40.  Making gold more expensive for holders of other currencies, the Dollar held near a one-month high against its rivals. Gold slipped more than 2.5% on Wednesday after the comments from the FED officials moved the Dollar to a two-month high, while US Treasury yields also jumped.  Gold dropped to its lowest in more than a month on Thursday, pressured by the gains in the Dollar and US Treasury yields after the FED indicated an earlier-than-expected interest rate increase.  Spot gold fell 0.4% to $1.804.4 per once having touched its lowest since 6^th May at $1,799.70.  Higher interest rates tend to lower gold’s appeal as they translate into a higher opportunity cost of holding bullion. 

Malta:  Harmonised Index of Consumer Prices (HICP) – May 2021

A press release dated 17^th June shows that in May 2021, the annual rate of inflation as measured by the HICP was 0.2% up from 0.1% in April 2021.  The largest upward impact on annual inflation was measured in the Education Index (+0.29%) while the largest downward impact was recorded in Restaurants and hotels Index (-0.7%).  The HICP measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services.  The HICP is calculated according to the rules specified in a series of European Union regulations that were developed by Eurostat in conjunction with the EU member states.  HICP is used to compare inflation rates across the EU. 

Malta:  Renewable Energy from Photovoltaic Panels (PVs) – 2020

The stock of PV installations amounted to 29,339 of which 85% were installed in Malta while 15% per in the Gozo and Comino region.  When compared to 2019, the stock of PV installations increased by 6.8%.  The percentage increases were highest in the South-eastern district (7.5%) and lowest in the Gozo and Comino district (5.4%).  The domestic sector accounted for 93.6% of the total stock of PV installations, followed by the commercial and public sectors, accounting for 5.5% and 0.9%, respectively.  The domestic sector accounted for 93.6% of the total stock of PV installations, followed by the commercial and public sectors, accounting for 5.5% and 0.9%, respectively.  Most of the increases in new PV installations arise from the domestic sector. 

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