“FED Meeting…”

The FED as widely expected, announced on Wednesday that it would start reducing its $120 billion in monthly purchases of Treasuries and mortgage-backed securities at a pace of $15 billion per month, with a plan to end the purchases altogether in mid-2022. The bank also restated its belief that the current high inflation is “expected to be transitory” arguing that price pressures will ease and pave the way for stronger employment and economic growth in the months to come.  Although the US central bank announced it was tucking away one of its main pandemic-fighting tools, by trimming its massive bond-buying program beginning this month, its latest policy statement and FED Chair Jerome Powell’s remarks in a news conference signalling it would remain patient and wait for more job growth before raising interest rates. The FED said in its latest policy statement, that “supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizeable price increases in some sectors,” adding to that “an easing of supply constraints (is) expected to support continued gains in economic activity and employment as well as a reduction in inflation.”  Meanwhile, Powell emphasised what he said is the FED’s intent to push labour markets further with low interest rates, and to withhold judgement about the limits of job creation until further outbreaks of the coronavirus have been contained. He told reporters “Ideally, we would see further development of the labour market in a context where there isn’t another COVID spike.  And then we would be able to see a lot. To see how does (labour) participation react in the post-COVID world.”  Yet inflation was uncomfortably high, Powell acknowledged, blaming it on “turmoil” in global supply chains that is likely to last until perhaps the second half of next year.  Inflation for the last five months has been running at twice the FED’s 2% target and moving in a way Powell said could well satisfy the central bank’s benchmark for a rate increase-once maximum employment is reached.  But for now, he said the FED would be “patient” in deciding when to raise its benchmark overnight interest rate from the near-zero level.

Bank of England keeps rates on hold

The Bank of England kept interest rates on hold on Thursday. The BOE kept alive the prospect of tighter monetary policy soon, saying it would probably have to raise Bank Rate from its all-time low of 0.1% “over coming months” if the economy performed as expected. In its announcement on Thursday, the BOE said the Monetary Policy Committee voted 6-3 in favour of allowing its government bond buying programme to reach its full size of 875 billion pounds.  Including its 20 billion pounds of corporate bond holdings – which this month will start to be reinvested in greener debt- the total asset purchase target remained at 895 billion pounds. 

COP26 Climate Conference

Leaders at the COP26 global climate conference in Glasgow have pledged to stop deforestation by the end of the decade and cut emissions of the potent greenhouse gas methane to help slow climate change. Nearly 90 countries have joined a US and EU led effort to slash emissions of the potent greenhouse gas methane 30% by 2030 from the 2020 levels, a pact aimed at tackling one of the main causes of climate change, a senior Biden administration official said.  Methane is more short-lived in the atmosphere than carbon dioxide but 80 times more potent in warming the earth. Cutting emissions of the gas, which is estimated to have accounted for 30% of global warming since pre-industrial times, is one of the most effective ways of slowing climate change.  More than 100 national leaders pledged to halt and reverse deforestation and land degradation by the end of the decade, underpinned by $19 billion in public and private funds to invest in protecting and restoring forests. COP26 aims to keep alive a target of capping global warming at 1.5 degrees Celsius above pre-industrial levels to avert still great damage from the intensified heatwaves, droughts, storms, floods and coastal damage that climate change is already causing.  Under the agreement, 12 countries pledged to provide $12 billion of public funding between 2021 and 2025 for developing countries to restore degraded land and tackle wildfires.  At least $7.2 billion will come from private sector investors representing $8.7 trillion in assets under management, who also pledged to stop investing in activities linked to deforestation such as cattle, palm oil and soybean farming and pulp production. Banks, insurers and investors with $130 trillion at their disposal pledged on Wednesday to place limiting climate change at the centre of their work.  The main aim of the COP26 talks is to secure enough national promises to cut greenhouse gas emissions, mostly from burning coal, oil and gas, to keep the rise in the global temperature to 1.5 degrees Celsius.   However, how to meet those pledges, is still being worked out. 

Eurozone Factory Growth

Eurozone manufacturing activity remained strong in October, however, was curtailed by supply chain bottlenecks and logistical problems which sent input costs soaring, showed a survey on Tuesday.  Ongoing disruptions caused by the coronavirus pandemic and a shortage of heavy goods vehicle drivers, has caused product shortages and left factories struggling to get the raw materials they need.  IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) dropped to an eight-month low of 58.3 in October from September’s 58.6.  This is still comfortably above the 50-mark separating growth from contraction.    An index measuring output which feeds into a composite PMI due on Thursday and seen as a good guide to economic health, dropped to 53.3 from September’s, its lowest reading since June last year.  Supply chain issues and rising inflation hit French, German and Spanish factories but Italian manufacturing recorded healthy expansion, growing at its strongest rate since June, earlier surveys showed.

US Private Payrolls

US private payrolls increased more than expected in October, suggesting the labour market and overall economy were regaining momentum early in the fourth quarter however, worker and raw material shortages remain a constraint.  Private employment rose by 571,000 jobs last month, showed the ADP National Employment Report. Data for September was revised down to show 523,000 jobs added instead of the initially reported 568,000.  The ADP report is jointly developed with Moody’s Analytics and was published ahead of the Labour Department’s more comprehensive, and closely watched employment report for October due on Friday.  However, the report was still consistent with an improvement in other labour market indicators in October as the wave of COVID-19 infections driven by the Delta variant subsided significantly.  

Currency Roundup

US Dollar

The dollar traded within the distance of the year’s peaks on the euro and yen on Wednesday, as investors awaited moves by the Federal Reserve to commence unwinding the support provided during the pandemic faster than other central banks of Europe and Japan.  The moves were slight in Asia ahead of the FED’s meeting later in the day and the dollar bought Yen 113.84 against a 201 peak of 114.69 and traded at $1.1582 per euro against the year’s top of $1.1522 per euro.  The dollar rebounded on Thursday, recovering after the Federal Reserve repeated that inflation is transitory. 

Australian Dollar

The Aussie had dropped 1.2% against the dollar on Tuesday and sat at $0.7436 on Wednesday.  Meanwhile the Reserve Bank of Australia this week abandoned its short-term yield target and dropped its expectation of holding rates at record lows until 2024.  The Aussie dropped as the bank also pushed back on aggressive pricing for 2022 hikes.   

Sterling

Sterling edged lower on Tuesday, trading around a three-week low, pressured by uncertainty whether the Bank of England will raise interest rates later in the week.  Sterling rose to a 20-month high versus the euro in late October on expectations for a BOE interest rate hike as inflation risks surged, on the uncertainty over the actions by the central bank at its policy meeting on Thursday.  BoE Governor Andrew Bailey has talked of the need to act to contain inflation expectations, with two of the other nine Monetary Policy Committee members voicing similar concerns.  Sterling dropped 0.2% versus the dollar to $1.3637 hitting a three-week low, whilst against the euro it dropped 0.1% to 85.03 pence to its lowest level in three weeks. In addition to the growth concerns are the post-Brexit spat with the European Union over Northern Ireland trading arrangements and a fishing row with France.  On Wednesday sterling sat just above a two-week low at $1.3628 in Asia, mainly in the bottom half of the range it traded since July. Sterling dropped against a strengthening dollar on Thursday, however, the slide was capped by some expectations that the Bank of England could become the first major central bank to raise interest rates.  Ahead of the meeting sterling slid 0.4% versus the dollar to $1.3630 after touching a weekly high during Asian trading hours. 

Oil

Oil rose towards $85 a barrel on Tuesday supported by signs that supply from OPEC and other producers is falling short as demand recovers from the worst of the pandemic. Brent crude gained 0.2% to $84.91 a barrel, while the US West Texas Intermediate (WTI) crude climbed 0.2% to $84.19.  The price of Brent has surged more than 60% in 2021, hitting a three year high of $86.70 last week as demand recovers and OPEC and its allies led by Russia (OPEC +) eases record output cuts slowly. Oil prices dropped on Wednesday as industry data pointed to a huge build up in crude oil and distillate stocks in the US. The latter is the world’s largest oil consumer and pressure increased on OPEC to increase supply.  Brent crude futures dropped $1.03 or 1.02% to $83.69 a barrel after dropping to a session low of $83.27 earlier.  Meanwhile US West Texas Intermediate (WTI) crude futures tumbled $1.30 or 1.6% to $82.61 a barrel after dropping to a low of $82.26 earlier.  Oil prices rose on Thursday lifted by the expectations that OPEC and its allies will stick to slow output increases despite calls from the United States and large importers for additional supply to cool prices.   Brent crude was up 1.2% at $82.93 a barrel and US West Texas Intermediate crude rose 0.8% to $81.48.  Oil prices rose on Friday after OPEC+ producers rejected a US call to raise supply and instead maintained plans for a gradual return of output. 

Gold

Gold prices were subdued on Tuesday ahead of the US Federal Meeting with spot gold dropping 0.1% to $1,790.55 per ounce, while US gold futures for December dropped 0.3% to $1,791.20 per ounce. Gold prices eased on Wednesday as traders took a cautious approach whilst awaiting the outcome of the US Federal Reserve policy meeting. Spot gold was down 0.4% at $1,780.9 per ounce. Gold prices gained on Thursday as US Treasury yields eased after the Federal Reserve announced a widely anticipated tapering of its monthly bond purchases and indicated that it would be patient on raising interest rates.  Spot gold rose 0.5% to $1,777.40 per ounce after tumbling to a three-week low on Wednesday.  US gold futures for December delivery climbed 0.8% to $1,777.20 per ounce.  Gold is viewed as a hedge against inflation, however, reduced stimulus and interest rate hikes tend to push government yields up raising the opportunity cost of the bullion which pays no interest. 

Market Wrap

European stocks ended in higher territory on Monday with the STOXX 600 closing at a record high by  carrying over gains from October on the back of positive earnings and a jump in back stocks fuelled by expectations of a rate hike by the European Central Bank next year. The bank sector touched its highest level in more than two years and was the best performer for the day.  The CAC 40 increased by 0.38% to 6,830.34 while the DAX dropped by 0.05% to close at 15,688.77. Meanwhile, in the US the Dow Jones Industrial Average rose 0.25% to close at 35,819.56, the NASDAQ 100 closed higher by 0.46% reaching 15,850.47 and the S&P 500 closed at 4,605.38 higher by 0.19%.  European stocks reached a record high on Tuesday as a strong outlook from hearing aid maker Demant supported healthcare stocks, however, broader gains were impacted by losses in miners and the prospect of major central bank meetings.  The pan-European STOXX 600 index closed 0.1% higher at 479.71 points, with healthcare stocks leading the gains with a 1.3% rise.  Mining stocks led the losses dropping 2.9% on a slump in iron ore and copper prices, as loose supply conditions and a poor demand outlook for China rattled metal markets.  About 166 companies of the STOXX 600 reported quarterly earnings so far and 65.7% have topped profit estimates, according to Refinitiv IBES data.  Italy led to a recovery in eurozone bond markets on Tuesday, with borrowing costs falling sharply amid fears of higher inflation.  Bond yields across the bloc shot up since Chistine Lagarde disappointed investors last week by not pushing back more firmly against aggressive market pricing of interest rate rises next year.  Southern European bonds, which bore the brunt of the selloff in the wake of last Thursday’s ECB meeting, outperformed.  Italy’s 10-year bond yield, for instance, dropped 14 bps to 1.08%.  It was set for its biggest one-day drop since May 2020, according to Refinitiv data.  Spanish and Portuguese 10 year bond yields dropped 8-9 bps each after having jumped in recent days on the risk that ECB could tighten policy faster than anticipated.  Germany’s 10-year Bund yield, which rose 10 bps in October, dropped 6 bps on the day to -0.16%.  It held below roughly 2 ½ year highs hit last week at -0.065%.  Global shares hovered at record highs while currency markets and US Treasuries were steady on Wednesday, as investors focused on the expectations of winding down of the stimulus measures.  CAC 40 increased 0.34% to reach 6,950.65, the DAX closed higher by 0.03% to 15,959.98 and the FTSE 100 closed lower by 0.36% to close 7,248.89.  The move was initially seen as favourable to risky assets, with Wall Street indexes closing at record highs. The Dow Jones Industrial Average increased by 0.29% to close at 36,157.58, the NASDAQ 100 closed higher by 1.08% to close at 16,144.5 whilst the S&P 500 increased by 0.65% to close at 4,660.57.

Malta:  Registered Unemployment – September 2021

A press release dated 1 November 2021 shows the data provided by Jobsplus for September, 2021 with the number of persons registering for work stood at 1,352 decreasing by 2,033 when compared to the corresponding month in 2020.  Registered unemployment levels decreased across all age groups for both males and females.  The largest share of males and females on the unemployment register south occupations as Clerical support workers, with 23.5% and 45.6% respectively.

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

November 5th, 2021


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