“EU’s Embargo on Russian oil imports…”

European Union leaders have agreed on an embargo on Russian oil imports that will commence towards the end of the year and which for now exempts pipeline imports which Hungary and two other central European states depend on.  These sanctions are the toughest so far which aim to remove 90% of Russia’s crude imports into the 27 EU states by year-end, according to senior officials.  According to Latvian Prime Minister Krisjanis Karins, “the purpose is to stop Russia’s aggressive war”.  Whilst two-thirds of the Russian oil imported by the EU comes through tanker, one third comes through the Druzhba pipeline.  The ban on the imports by sea will be phased in a period of six months for crude oil and eight months for refined products according to a European Commission.  The aim to cut 90% of all Russian imports by the end of 2022 includes seaborne deliveries and also Poland and Germany stopping their own imports of Russian oil via pipeline by then, which they pledged to do so.  Meanwhile, the remaining 10% would be temporarily exempt from the embargo so that landlocked Hungary, Slovakia and the Czech Republic have access to Russian oil from the Druzhba pipeline.

FED assets for first Quarter of the year

The US FED is carrying unrealised losses of $330 billion on its holdings of US Treasury and mortgage-backed securities as of the end of March showed the newly released financial statements amid the impact of rising interest rates on the market value of the FED’s balance sheet. The documents also showed that the central bank’s holdings of nearly $9 trillion in assets still allowed the FED to forward $32.2 billion to the US Treasury in the first quarter of 2022.  Nonetheless, the losses on the investments, an $8.5 trillion portfolio that increased through asset purchases whose aim was to keep stability in the financial markets during the pandemic, could pose a political problem to the central bank.  According to the FED’s first quarter financial statement, the FED’s $2.77 trillion in MBS purchases has declined on a fair market value basis by $164 billion and as at 31 March was worth $2.606 trillion.  In line with interest bearing security, as market rates have risen the losses on the assets have deepened.   The report also stated that as the FED increases its short-term interest rates, it will be offering larger payments to banks for the reserves held with the FED, increasing the central bank’s expenses.  Concurrently, as its balance sheet shrinks, its interest earnings will drop potentially leading to operating losses for the FED.  However, New York FED officials stated that the FED would still be able to fund its operations and conduct monetary matters.

German Import Prices for April

German Import prices in April climbed 31.7% in comparison to last year’s period representing the strongest increase since September 1974, declared the statistics office on Monday.   Meanwhile, compared to March, April import prices rose 1.8% versus expectations of 2%.  Furthermore, April export prices increased 16% year-on-year and were 0.8% higher than in March. 

German NRW May CPI

Consumer prices in the German state of North Rhine-Westphalia climbed by 0.9% month on month in May and increased by 8.1% year-on-year showed the state’s statistics office on Monday. So as to calculate a preliminary inflation figure for Germany data 16 member states are used.  In this light, German inflation rose to its highest level in nearly half a century in May amid soaring energy and food prices increasing the case for the central bank to raise interest rates in July.  German consumer prices, harmonised to make them comparable with inflation increased from 7.8% a month earlier to 8.7%, well ahead of expectations for 8%, showed data from the Federal Statistics Office on Monday.  Inflation was last time high in the winter of 1973/1974 when the oil crises made it difficult to soften inflationary pressures. Despite the delay in response by the ECB in comparison to global peers, the bank made it clear last week that interest rates will need to be increased to control inflation.  While policymakers seem to be in favour of a 25-basis point increase in July, the central bank governors of Austria, Latvia and the Netherlands has all stated that a 50-basis point increase should remain on the table for now.  Policymakers are concerned that inflation is being passed on to consumers by firm? and impacting the whole economy. 

German Consumer Prices

German consumer prices climbed by an annual 8.7% while German import prices registered their biggest increase since September 1974.   Meanwhile the Spanish 12-month inflation rate continued with its increase in May after a drop in April.  Germany’s 10-year government bond yield increased to an almost two-week high of 1.072% and was last up 9 basis points at 1.048%.  Meanwhile, Italy’s 10-year bond yield rose by as much as 13.5 bps to an almost one-week high of 3.035%.  According to ECB Philip Lane, the ECB should raise interest rates by 25 basis points (bps) in July and September and is committed to prevent fragmentation within the limits of the bank’s mandate.  Fragmentation is a widening of the yield spread between the bonds of core countries such as Germany and the periphery that could hinder the transmission of monetary policy. Meanwhile, spreads have declined recently as the fears of an aggressive monetary tightening has lessened.  Whereas in April the spread between the Italian and German 10 years yield was around 150 bps, it widened by 6bps to the day’s high of 197.2 bps.

German Exports

German exports increased more than forecasted in April by 4.4% on the month before, while imports increased by 3.1%.  Exports to Russia from Germany declined by 10% in April after dropping by 60% in March on harsher Western sanctions on Moscow for invading Ukraine, said the Federal Statistics office.  Meanwhile in April, Germany had a seasonally adjusted trade surplus of Euros 3.5 billion, reported the office against a forecast of Euros 1.6 billion. 

Eurozone Factories

Manufacturing growth slowed in the eurozone last month as factories encountered supply shortages, high prices and a drop in demand according to a survey.  The S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) dropped to 54.6 from April’s 55.5, its lowest since November, 2020.  A value above 50 indicates growth.  An index that measures output, that feeds into a composite PMI which was due on Thursday and seen as a good gauge of economic health increased to 51.3 from 50.7.  S&P Global said that as economies have reopened following the coronavirus pandemic people are going to vacations and enjoy recreational activities.  The May flash services PMI dropped from 57.7 to 56.3 suggesting growth also slowed in that sector.  

Inflation Data in France

Bank of France Governor Francois Villeroy de Galhau said on Tuesday that the latest increase in inflation make the withdrawal of exceptional monetary policy measures more necessary.  Preliminary EU-harmonised data on Tuesday showed that French inflation rose more than private economists had expected in May to a new record of 5.8%. Villeroy added that “the latest inflation figures for May in France and other countries confirm the increase we expected and the need for a progressive but resolute monetary policy normalisation.”  He added that such a decision could be taken at the ECB’s governing council next week and that rising interest rates should benefit the profitability and net margins of French banks.  

Gold prices

Gold prices rose on Monday as the US Dollar weakened.  Spot gold was up at $1860.77 per ounce.  As the dollar eased bullion becomes more attractive for buyers holding other currencies.  Although gold has hit an over three-month low of $1,786.60 per ounce on 16 May, gold prices are on the path for a second straight monthly fall for the first time since March 2021, so far dropping 1.9%.  Higher short-term US interest rates raise the opportunity cost of holding gold.    

China’s factory Activity

China’s factory activity dropped at a slower pace in May as COVID-19 curbs in major manufacturing hubs.  The slowdown in China’s factory is impacting production lines in other major Asian economies such as Japan and South Korea that are reporting sharp declines in output.   Although the PMI hit a three-month high, it remained below the 50 mark that separates contraction from growth for the third straight month.  China’s economy was severely damaged by strict restrictions in April as the country had to deal with worst COVID-19 outbreak since 2020.  So as to urgently stabilise the economy, China’s cabinet on Tuesday pledged to step up tax credit rebates, support new infrastructure projects and energy projects, whilst also accelerate local government special bond issuance. 

Oil prices

Oil prices continued with their gains on Tuesday after the EU agreed to cut oil imports from Russia.  Brent crude for July, which expires on Tuesday increased by 1.8% to $123.86 a barrel after hitting $124.10, the highest since 9 March.  US West Texas Intermediate crude was trading at $119.12 a barrel up by 3.5% from Friday’s close.  Both benchmarks have gained since Wednesday.  Oil prices have increased in March to their highest since 2008 and have risen more than 55% so far this year.  Nonetheless, oil prices rose more than 1% on Thursday after US crude inventories dropped more than expected amid high demand for fuel, disregarding OPEC’s agreement to boost crude output to make up for the drop in Russian supply.  Prices were also supported by the EU’s sixth package of sanctions against Russia which include an immediate ban on new insurance contracts for ships carrying Russian oil and a six month phase out on existing contracts.  Brent futures settled higher by 1.1% to $117.61 a barrel, while US West Texas Intermediate crude climbed 1.4% to $116.87.  Meanwhile earlier on Thursday Saudi Arabia and other OPEC+ states agreed to raise oil production to offset losses to ease surging oil prices and inflation than the current 432,000 bpd. 

Malta:  Gross Domestic Product – Quarter 1 2022

A press release dated 30 May shows that provisional estimates indicate that Gross Domestic Product (GDP) for the first quarter of 2022 amounted to EUR 3,784.5 million registering an increase of € 366.7 million or 10.7% when compared to the same quarter of 2021. Taking the production approach, during the first quarter of 2022, Gross Value Added (GVA) rose by 10.8% in nominal terms and 6.9% in volume terms compared to the corresponding quarter of 2021.  The contributing factors to this growth were service activities and industry contributing 7% and 0.1% respectively.  Meanwhile, construction had a negative contribution of 0.2% while agriculture and fishing had a neutral impact on the GVA growth in volume terms.  In comparison to the same quarter last year, services activities increased by 8.2% and industry by 1.5% in volume terms.  A drop by 9.5% and 3.9% was recorded in Agriculture and fishing activities and construction respectively.   On the expenditure side, GDP is calculated by adding final consumption expenditure of Households, General Government and Non-profit Institutions (NPISHs), Gross Capital Formation (GCF) and Net Exports.  With regards to the Income Approach which also measures economic activity shows how GDP is distributed among compensation of employees, the operating surplus of enterprises and taxes on production and imports net of subsidies.  In comparison to the first quarter of 2021, the €366.7 million increase in nominal GDP was a result of €85.9 million increase in compensation to employees, a €218.4 million increase in gross operating surplus and mixed income, and an increase of €62.3 million in net taxation on production and imports.

Malta:  Industrial Producer Price Indices – April 2022

A press release dated 31 May 2022 shows that in comparison to April 2021, the industrial producer price index increased by 5.75%.  The increase in prices was registered in the main industrial groupings except energy.  The highest increase was registered in the intermediate goods (9.08%, consumer goods (5.07%) and capital goods (3.53%).  Industrial producer prices for the domestic market climbed by 9.58%, price increases were recorded in the intermediate goods (22.34%), capital goods (19.07% and consumer goods (9.17%).  Meanwhile, during 22 April, the industrial producer price index declined by 0.99% when compared to 22 March.  Intermediate goods dropped by 3.07% while increases where registered in the consumer goods and capital goods respectively.  No price changes were recorded in the energy sector. 

General Government Debt: 2021

A press release dated 1 June 2021, General government debt amounted to € 8,284.4 million or 57% of GDP, an increase of €1,305.9 million over 2020.  Debt securities that include Malta Government Stocks and Treasury Bills are the preferred debt instrument amounting to €6,842 or 82.6% of the total debt in 2021.  Other debt instruments are loans and currency at 10.5% and 6.9% respectively. All the debt owed is in EUR.  The interest rate applicable to the nominal debt for 2021 was 2.2% while for 2018 was 3.5%.  As at 2021, the market value of the total general government debt is valued at €9,186.5 million compared to a nominal value of €8,284.4 million. 

‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’