“Ever Given, Oil and Political Instability…”

Early last week Ever Given, a 400-meter-long vessel leased by Evergreen Line had become jammed diagonally across the southern section of the Suez Canal, due to high winds. This caused several container ships, bulk carriers, oil tankers and liquefied natural gas vessels to be stuck in a large que waiting for transit. On Monday, the Ever Given was pulled free after blocking the vital waterway for six days, but this delay is expected to cause disruptions to the global trade.

Brent crude futures increased to 0.9%, on Monday before trading, resulting to $65.18 per barrel while U.S. Crude increased by 0.7% at $61.42 per barrel around midday.

The 2021 Political Risk Outlook, published end of last week, cautioned that countries who are basing their economy on fossil fuels exports will be experiencing a gradual political instability. Amongst the first countries to expect political instability one can find Algeria, Char, Iraq and Nigeria, as oil producers are already feeling the effects of consumers transitioning from fossil fuels to low carbon energy production. This transition is expected to increase in the coming three to twenty years, while Covid-19 is slowly deteriorating short-term gains in oil export revenues.

Air France bailout

On Monday, the French Finance Minister, Bruno Le Maire, confirmed that France and the European Union are close to a deal related to the bailout of Air France, which similarly to other carriers has been hammered by the Coronavirus pandemic. The Finance Minister explained that this deal is not about cutting jobs or closing lines, but compromise is being asked to make sure that there will be fair competition between Air France and other carriers. In 2020, Air France-KLM group recorded a €7.1 billion net loss and received €10.4 billion in loans and guarantees from France and the Netherlands.  The companyalso negotiated a state-backed recapitalisation, with European Union regulators seeking airport slot concessions at Paris-Orly and Amsterdam-Schiphol.

The EU’s COVID-19 Stimulus & Global Treaty

In July, all the European nations agreed to tap financial markets via the European Commission and raise €750 billion to tackle the economic crisis brought by the Coronavirus pandemic. Although countries within the EU share some political decisions, each country has full control over its fiscal arrangements. This means that agreeing to take new debt on the country resulted to be controversial for more fiscally conservative nations, who worry their taxpayers might face tax increases. A clear example of this is the Netherlands, but Prime Minister Mark Rutte clarified that this is a one-off event to handle such an unprecedent economic shock across the globe.

This argument was not appreciated by every EU-sceptic. Citizens’ Will Alliance, a German group, complained to the country’s constitutional court that the European treaties do not allow the bloc to take a debt jointly. This resulted in the German court to halt a law which would have helped the European Commission to raise funds. The European Commission does not have the right to tap financial markets for funds before all member states have legislated in favour. Till now 22 of the 27 members have done so or are due to conclude the process. The Commission would like to start raising funds this summer and make them available in the second half of 2021.

On a more Global view, 23 country leaders together with the World Health Organisation on Tuesday backed an idea to initiate an international treaty that would help the world deal with future health emergencies such as the one we are currently going through. The scope behind the treaty is to ensure universal and equitable access to vaccines, medicines, and diagnostics for pandemics.  This was suggested by Charles Michel, the Chairman of European Union leaders at the G20 Summit in November 2020.

Market Wrap

Stock could experience a shocking time by the end-of-quarter trading, as pension funds and other investors are buying bonds and selling stocks to rebalance their portfolios. One should keep in mind that this week can shift the overall economy as on Friday the March employment report is due on Wednesday the White House is expected to deliver its infrastructure plans and on Thursday the ISM manufacturing data will be released.

On Monday, the S&P 500 closed slightly lower at 0.09% or 3,971.09, due to a decrease in bank share prices resulting from warning of potential losses from a hedge fund’s default on margin calls. The Dow ended 0.3% higher 0.3% at 33,171.37, with Boeing Co contributing to the increase amid a rise in the stock price by 2.03%. This aeroplane manufacturer reached a deal with U.S. budget carrier Southwest Airlines Co for a variant of the 737 MAX aircraft. 

The Dollar reached its one-year high against the Yen on Tuesday amid a spike in Treasury Yields, as accelerating vaccinations and massive stimulus in the U.S. brought inflationary concerns. The Dollar rose to ¥110 in Asia, a point last seen in March 2020. It is on the right track to achieve the best month since late 2016.   The end of Japan’s fiscal year in March will also result in an appreciation in demand for the Dollar as companies seek to balance off their books.

Benchmark 10-year Treasury Yields rose as high as 1.745% in Asia, nearing the 14-month high of 1.754% which was reached earlier this month. On the other hand, the 5-year yield pushed as high as 0.917% for the first time since March 2020. Higher yields make a currency more attractive as an investment opportunity. The Euro felt close to its   4.5 month low and reached $1.1763 on Monday, on track to fall by the most since mid-2019.

In Cryptocurrencies, Bitcoin reached $58,000 overnight as Visa Inc said that it would allow the use of Cryptocurrencies to settle transactions on its payment platform, given the latest acceptance of digital currencies in Wall Street and Main Street.

Malta’s Industrial Producer Price Indices

In a Press Release, on Monday, by the NSO, the Industrial Producer Prices Indices announced an 0.51% increase when compared to February 2020. Intermediate goods, consumer goods and capital goods rose by 0.84%, 0.41% and 0.30% respectively. Industrial producer prices for the domestic market increased by 1.16%. Price rises were recorded in intermediate goods (2.85%) and consumer goods (1.79%) while capital goods dropped by 0.53%. Non-domestic prices increased by 0.09%. A price rise of 1.73% was registered within the Euro area but a decline of 0.74% was recorded within the non-Euro area.

Malta: February 2021 Registered Unemployment

In a Press Release, on Monday, by the NSO, data showed the number of registered unemployed people for the month of February which indicated a year-on-year increase of 820 people registered under Part I and an additional 106 persons registering under Part II of the unemployment register. Registered unemployment levels increased across all age groups. When compared to February 2020 levels, those registering for work for less than 21 weeks increased by 412 while those registering between 21 and 52 weeks increased by 526 persons. On the other hand, those who had been registering for work for more than one year, decreased by 12 persons when compared to the same month in 2020. The number of persons with a disability who were registering for work increased by 15 when compared to the previous year, reaching 252. Males accounted for 72.6% of total registrants with a disability. The largest share of males and females on the unemployment register sought occupations as clerical support workers, with 21.5% and 39.1% respectively.

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