“FED Meeting – A Long Road to Recovery …”

The US Federal Reserve policymakers on Wednesday predicted that the US economy would shrink 6.5 percent in 2020 and unemployment would still be at 9.3 percent at year end. It also indicated that it plans years of extraordinary support for the economy.  Some 20 million or more people have been made redundant since February and Jerome Powell, the Fed Chair acknowledged it could take years for them to all find jobs.  In his opening speech Powell acknowledged the nationwide demonstrations and said it was now the FED’s mission to bring the job market back to where it was at the end of last year, with the unemployment rate at a record low of 3.5 percent and wage gains accumulating for some of the very same lower-paid workers in the service sector that have suffered most during the recent collapse.  Projections by policymakers show just how long this might take as officials see the unemployment rate falling to 6.5 percent at the end of 2021 and 5.5 percent at the end of 2022.  In its policy statement the FED said, “the ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term and poses considerable risks to the economic outlook over the medium term.”  Officials promised to maintain ongoing bond purchases at least at the current pace of around $80 billion per month in Treasuries and $40 billion per month in agency and mortgage-backed securities.  These can be increased later or supplemented with other strategies.  The pledge by the FED to keep monetary policy loose until the US economy is back on track repeats a promise made at the beginning of the pandemic.

German Exports in April

German exports and imports slumped in April, posting their biggest declines as demand dried up in the coronavirus pandemic, according to data on Tuesday.  As Germany is facing its biggest recession since World War Two, the big question is how quickly the export-oriented economy can recover.  The Federal Statistics Office said, that seasonally adjusted exports dived 24 percent on the month while imports slid by 16.5 percent.  The trade surplus shrank to EUR 3.2 billion euros.  The BDI industry association expects exports to slide by about 15 percent this year and imports by some 12 percent.  In order to boost the economy last week, the government announced a Eur 130 billion stimulus package to help boost domestic demand.  This came on top of Eur 750 billion worth of measures announced in March.  The government expects the economy to shrink by 6.3 percent.  The pace of recovery also depends on European neighbours and Germany’s trade partners such as China and the US.  Exports to France and the US hit hard by the coronavirus dropped by about 48 percent and 36 percent respectively, while those to China fell by 12.6 percent in April said the Federal Statistics Office.


The fourth round of trade talks between Britain and the EU finished with both sides stating there has been little progress.  The UK has until the end of July to request an extension to the transition period which is due to end after December 2020.  Britain will start the negotiating a post-Brexit trade agreement with Japan on Tuesday which the government said both sides hoped would enter into force by the end of this year. 

S&P Cuts Japan’s Outlook

S&P Global Ratings on Tuesday lowered its outlook on Japan’s sovereign debt rating to stable from positive amid increased uncertainty over the country’s fiscal health as it boosts spending to overcome the effects of the coronavirus pandemic.  This highlights the challenge Japan is facing trying to support an economy already slipping into recession.  S&P said, “Japan’s weak government finances have deteriorated further in fiscal 2020 owing to the COVID-19 pandemic.”.  Two supplementary budgets rolled out by the government will raise the general government deficit for this fiscal year to about 16 percent of the country’s gross domestic product.  S&P affirmed Japan’s A+ long-term and A-1 short-term sovereign credit ratings, however, it said it could lower the ratings if economic growth remains persistently low and a possible return to deflation puts long-term pressure on Japan’s fiscal performance. 

China Factory Gate Deflation

China’s producer prices fell by the sharpest rate in more than four years, underscoring pressure on the manufacturing sector as the COVID-19 pandemic reduces trade flows and global demand.  The coronavirus pandemic has disrupted trade to China’s key export markets including the US and Europe.  In a statement on Wednesday, the National Bureau of Statistics said the producer price index (PPI) in May fell 3.7 percent from a year earlier, the sharpest decline since March 2016. The Bureau further said that the drop-in producer prices was led by a 57.6 percent slide in prices in the oil and natural gas industry and a 24.4 percent drop in the oil, coal and other fuels processing sector.  On a monthly basis, however, producer prices showed some signs of steadying.  May producer prices fell 0.4 percent from the previous month, easing from April’s 1.3 percent drop. 

China’s Auto Sales

China’s auto sales in May rose 14.5 percent from the same month in the previous year according to industry data on Thursday.  This is the second consecutive month of increase as the world’s biggest vehicle market recovers from lows hit during the coronavirus pandemic. The result followed a 4.4 percent rise in April and a 43 percent drop in March.  Before April, sales had suffered an almost two-year slump.  Sales in May rose to 2.19 million vehicles, data from the China Association of Automobile Manufacturers (CAAM – the country’s largest auto industry) showed.   The data further showed that in May, sales of new energy vehicles (NEVs) fell for an 11th month to 82,000 units.  NEVs include battery-powered electric, plug-in petrol-electric hybrid and hydrogen fuel-cell vehicles.  The outlook is a challenging one, as the industry works to emerge from a drop-in demand that was also aggravated by a trade war with the United States.

Market Wrap

Last week’s US Jobs data for May, continued to drive stock markets higher.  The Nasdaq closed at its record high on Monday while the S&P 500, which is about 5 percent below its own all-time high, also erased its year to date losses.   Meanwhile, on Monday the World Health organisation warned that the COVID-19 pandemic is “far from over” as a record number of new daily infections were reported.  Eurozone bond yields were mostly steady early on Tuesday, with lower-rated states expected to raise large amounts through syndicated sales.  Ireland is selling a 10 year and Spain a 20-year bond via syndication, when borrowers hire a group of banks to sell a bond directly to investors, helping them to increase the size of the issue.  Greece is also expected to start a sale after hiring banks on Monday.  US stock index futures dropped on Tuesday as focus turned on the Federal Reserve’s two-day policy meeting.  Stocks in the travel industry dropped in pre-market trading after Monday’s increase.  US Treasury yields fell on Tuesday as investors bought government debt and awaited news from the Federal Reserve about the yield curve control and negative interest rates after the Policy meeting ended on Wednesday.  The benchmark 10-year yield was last down 0.822 percent building on Monday’s retreat.  On Wednesday Asia’s stock markets edged up to a fresh three-month high.  Thursday however saw World Shares experiencing their biggest drop in five weeks amid the sober outlook from the US Federal Reserve that challenged market optimism on the global economy, while bonds rallied on expectations that more stimulus is needed to ensure recovery.  Furthermore, risk appetite was also affected by the possibility of a fresh increase in US coronavirus cases.   Meanwhile, on Wall Street which had been nearly unchanged ahead of the Fed’s statement, stock prices ended mixed.  The benchmark S&P 500 index was down about 0.5 percent whereas the NASDAQ Composite was up about 0.7 percent.   Yields on the 10-year Treasuries fell 9 basis points on Wednesday, the biggest daily drop in almost two months.  The German Bund yields, the benchmark for Europe also followed suite.  The 10-year levels fell to an eight-day low in early trade at -0.37 percent falling 4 basis points on the day.   On Thursday European bourses opened lower with the London’s FTSE, Frankfurt DAX and Paris CAC 40 were all down more than 2.5 percent.  The pan-European STOXX 600 fell 2.5 percent, its fourth straight day of decline, with travel and leisure stocks sliding.   For sectors affected by the coronavirus pandemic such as carmakers, travel and tourism it was a fourth straight day of drops.  Meanwhile, Wall Street plunged on Thursday as investors were concerned about the resurgence of coronavirus infections that could hinder recovery from lockdowns and they digested the gloomy economic forecasts from the US Federal Reserve.  The slump in global shares continued Friday. 

Currency Roundup

The pound fell against the dollar and the euro on Tuesday erasing the gains reached on Monday amid shifts in global risk appetite, as well as domestic concerns over Brexit and the re-opening of the British economy.  This month the pound has risen 2.6 percent against the dollar.  As many economies emerged from lockdowns, the demand for the Dollar, a safe-haven currency, dropped.  Against the euro, the pound was down around 0.4 percent at 88.10 pence.  Meanwhile, investors are still waiting for more information about the proposed re-opening of the UK economy.  The dollar found footing on Tuesday rising against commodity currencies for the first time in June as investors paused to take profits.  The Australian dollar which touched a 10-month high of $0.7043 in early Asian trading, retreated 1 percent to $0.6948 after China’s education ministry warned students to carefully consider studying there amid tension between the trading partners.  The yen stood at the edge of that range at 107.97 per dollar, gaining as investors weighed the possibility of stepping-up bond buying or a dovish outlook from the FED.  On Thursday the dollar bounced against riskier currencies and the safe-haven yen reached a one month high amid the outlook by the US Federal Reserve.  The euro moved back to $1.1360 having hit its highest since mid-March on Wednesday at $1.1422.  Expectations of super-low rates should benefit gold, however it dropped to $1,728 during selling in Asia. 

Global Gas

In its yearly outlook on Wednesday, the International Energy Agency said that the coronavirus crisis and a very mild winter in the northern hemisphere have put global natural gas demand on course for the biggest annual fall on record.  Global gas demand is expected to drop by 4 percent to 3,850 bcm this year, twice the size of the drop following the 2008 global financial crisis.  Major global gas industry has experienced price falls to record lows amid lockdowns and a reduction in industrial output due the coronavirus pandemic.  The oil and gas industry is cutting down on spending and postponing investment decisions.  Although demand is expected to increase in 2021, the IEA does not expect a quick return to pre-crisis levels.  More mature markets such as Europe, North America and Asia are expecting to see the biggest drops in demand, accounting for 75 percent of the total fall in 2020.   


Oil prices rose on Tuesday as optimism about recent commitments from major oil producers to cut production offset concerns that a resurgence in coronavirus cases could hurt fuel demand.  Brent crude rose 0.9 percent to settle at $41.18 a barrel whilst West Texas Intermediate crude rose 2 percent to end at $38.94 a barrel.  On Saturday OPEC, Russia and other producers, a group known as OPEC+ agreed to extend record cuts of 9.7 million barrels per day until the end of July.  Meanwhile, Saudi Arabia, Kuwait and the United Arab Emirates said they would not keep supplemental reductions that amount to more than a million barrels of daily supply.  The demand for fuel has recovered from April’s collapse amid the lockdowns.  The American Petroleum Institute said on Tuesday that crude inventories rose by 8.4 million barrels in the week to 5 June to 539.4 million barrels.   Oil prices on Thursday turned lower, amid renewed worries about demand and after US data showed crude inventories have risen to record highs. 

Malta:  International Trade in Goods – April 2020

Provisional figures for registered trade in Malta recorded a trade deficit of EUR 139.4 million during April 2020, compared to a deficit of EUR 230.2 million in the corresponding month of 2019.  Meanwhile, during the first four months of this year, the trade deficit narrowed by EUR 793.8 million when compared to the corresponding period of 2019, reaching EUR 725.4 million.  Both imports and exports decreased by EUR 807.3 million and EUR 13.5 million respectively.  While lower imports where mainly in machinery and transport equipment, chemicals, and miscellaneous manufactured articles, the main decreases in exports were registered in mineral fuels, lubricants and related materials, and food and were partly outweighed by an increase of EUR 40 million in machinery and transport equipment.  Imports from the EU reached EUR 935.3 million which is 50.9 percent of total imports.  There was a decrease of EUR 14.5 million in imports from euro area countries when compared to the same period in 2019.  

Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt/


June 12th, 2020

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