“FED announced a 75 basis-point increase…”

The FED on Wednesday announced a 75 basis-point increase raising the central bank’s overnight interest rate from near zero to a level between 2.25% and 2.5%.  This is the fastest tightening of monetary policy since the battling of double-digit inflation in the 1980’s by Fed Chair Paul Volcker. In his response as to whether the US economy was in for a recession, Jerome Powell, the Fed Chair replied, “I do not think the US is currently in recession,” whilst referring to the unemployment rate that is still near a half-century low on the back of solid wage growth and job gains.  He added, that, “It doesn’t make sense that the US would be in a recession.”  Meanwhile, consumer prices have not yet reached the 10% annual mark, however, at 9.1% they are close enough for the FED and the Biden administration to take action.  This is a sensitive issue as the congressional elections are due in November.  Powell also said, “We do not want to see demand running below potential for a sustained period to create slack” in the economy”…”We’re trying to do just the right amount.  We’re not trying to have a recession.”  He was also firm that inflation could drive the course of the FED and that, “another usually large (rate) increase could be appropriate” for the upcoming FED meetings.  However, he did not provide any specific guidance on what to expect next.  He further added that “Restoring price stability is just something we have got to do”…”there isn’t an option to fail.”  Furthermore, while jobs have remained “robust” officials noted in the new policy statement that “recent indicators of spending and production have softened” indicating that the aggressive policy stance put in place since March is being felt.

German Inflation

German inflation unexpectedly increased in July after a further reduction in gas flows from Russia that raised concerns about higher energy bills, showed data on Thursday.  Consumer prices increased by 8.5% on the year, following an 8.2% in June, showed the federal statistics office, citing preliminary data.  Energy prices were 35.7% higher in July on the same month last year, said the office.  Both the higher energy prices and as well as the food prices, with the latter rising by 14.8%  were driving inflation considerably.  In non-harmonised terms, Germany’s year on year consumer price index dropped slightly in July to 7.5% from the previous month’s 7.6%, showed the data. 

IMF cuts global growth forecasts again

The IMF has cut the global growth forecasts again on Tuesday warning that there are downside risks from high inflation and the war in Ukraine which could push the world economy into a recession if left unattended. In its update of the World Economic Outlook the IMF said that global real GDP growth will slow to 3.2% in 2022 from a forecasted 3.6% issued in April.  Furthermore, the IMF also cut the 2023 growth forecast to 2.9% from the 3.6% April estimate amid the impact of tighter monetary policy.  In 2021 global growth has rebounded to 6.1% after the impact of the COVID-19 pandemic which turned into a 3.1% contraction.  The IMF added that its forecasts were “extraordinarily uncertain” and subject to downside risks from the war in Ukraine that could further increase energy and food prices.  The IMF also said that it is expecting the inflation this year in advanced economies to reach 6.6% up from a 5.7% in the April forecasts, whilst also adding that it will remain high for more than expected.   

Europe Plans to Use less gas this Winter

On Tuesday EU countries agreed to an emergency plan to use less gas so as to save fuel for winter amid uncertain supply from Russia.  Prior to the war in Ukraine, Russia used to supply around 40% to the EU.  Moscow has cut down the supply to Europe since the invasion and stated that it will cut further making it difficult for Europe to store gas for winter.  In this light, Energy ministers agreed that all EU countries should voluntarily cut gas use by 15% from August to March, in comparison to their average annual use during the period 2017-2021.  In view of some objections, European countries have agreed to allow some countries to reduce or opt out of the intended plan.  Ireland, Malta and Cyprus that are not connected to other EU countries’ gas networks, would be exempted from the binding 15% cut.  Furthermore, Baltic countries would be exempted only if Russia had to severe the link.  Meanwhile, those states that exceed the gas storage by August can request weaker targets.  Levels vary amongst countries however, EU States overall have cut down on the use of gas by just 5% irrespective of the supply cuts by Russia and surging prices. 

S&P revise down Italy’s rating Outlook

S&P revised down Italy’s rating outlook from positive to stable amid concerns over political instability that could slow the path for key economic reforms.  S&P left Italy’s rating unchanged at BBB, which is two notches above junk territory.  The 10-year bond yield was up 11 basis points (bps) in the past week at 3.45% pushing the gap with that of Germany to around 249bps, its widest since mid-June.  Similarly, the broader eurozone bond markets edged higher a day after dropping sharply however were more modest in comparison to Italy.  For example, the 10-year Bund yield increased by 3.5 bps to 0.96% after dropping 10 bps on Tuesday following the EU countries’ approval of the  emergency plans about gas usage. 

Oil

Tuesday saw oil prices reversing early gains and settling lower as investors were concerned about consumer confidence and braced for an additional 20 billion barrels of crude oil to be released from the US Strategic Petroleum Reserve.  Brent crude dropped by 0.7% to $104.40 while US West Texas Intermediate (WTI) crude dropped by 1.8% to $94.98.  On Wednesday, investors focused on US oil data that showed crude stockpiles dropped by 4.5 million barrels last week, while demand for gasoline rebounded by 8.5% week on week.   Thursday saw oil prices mixed amid concerns about a potential global recession that could drive down demand for energy.  Brent crude futures climbed at 107.14 a barrel while US West Texas Intermediate crude dropped to $96.42 a barrel after rising $2.28 in the previous session.  These price movements followed the reports of the US Commerce Department showing the contraction in US economy for the second quarter, raising concerns about a recession. 

US Consumer Confidence

US Consumer confidence dropped to nearly 1 and 1/2 year low in July on worries about higher inflation and rising interest rates that could cut spending and lead to slower economic growth.  The survey from the Conference Board on Tuesday showed that consumers are sharply reassessing their spending plans this month.  Furthermore, new home sales have tumbled to their lowest level in just over two years in June pointing to an economy subject to a recession. Meanwhile economic activity is cooling as the FED is aggressively tightening monetary policy to tame inflation.  The Conference Board’s consumer confidence index declined by 2.7 points to a reading of 95.7 this month, the lowest level since February, 2021.  This was the third straight monthly decline.    

US Capital Goods

Orders for US made-capital goods rose more than expected in June, and shipments were solid indicating that business spending on equipment ended the first half of the year on strong footing despite rising inflation, interest rates and fears over recession. Meanwhile, orders for non-defense  capital goods excluding aircraft, which is a proxy for business spending plans rose 0.5% last month, said the Commerce Department on Wednesday.  Core capital goods shipments advanced by 0.7% after rising 1% in May.  

Malta:  Unemployment Rate – June 2022

A press release dated 28^th July, 2022 shows that in June, 2022 the monthly unemployment rate was 3%.  While the unemployment rate for males was 3.3% that for females stood at 2.6%.  The unemployment rate for June 2022 dropped by 0.1% from the previous month and dropped by 0.5% in comparison to that of June 2021.  During June 2022, the number of unemployed persons was 8,627 with the 25 to 74 age group largely contributed to the overall level of unemployment.  Meanwhile, the seasonally adjusted number of unemployed youths amounted to 1,831 whereas those aged between 25 and 74 years reached 6,796. 

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