“Federal Reserve Chair Jerome Powell…”

Federal Reserve Chair Jerome Powell pushed back on the suggestions that loose monetary policy risked unleashing inflation and financial risks amid the emerging economic boom.  In response to questions from Republic lawmakers about whether a faster-than-expected recovery still required crisis-level assistance he said “monetary policy is accommodative, and it continues to need to be accommodative… Expect us to move carefully, patiently and with a lot of advance warning.”  He also acknowledged the potential growth to come as the coronavirus crisis eases and vaccinations increase.  Powell did not speak about the risks of rising bond yields or a possible spike in inflation but about the 10 million jobs still missing compared to a year ago, and the need for the US central bank’s policy to stay wide open until the situation is sorted.  During the hearing Powell said that interest rates will remain low and the $120 billion in monthly bond purchases by the FED will continue, “at least at the current pace until we make substantial further progress towards our goals… which we have not really been making.” There was little reaction by the market to his comments. Powell stated that the focus is to remain on economic recovery that is “uneven and far from complete,” and would need the help of the central bank for “sometime” to return to full employment.    In a second day of testimony in Washington, Powell reiterated the Fed’s promise to get the US economy back to full employment and not to worry about inflation unless prices rose in a persistent and troubling way. 

UK Jobless Rate

The UK jobless rate rose to 5.1% in the last three months of 2020, its highest in nearly five years.  Data from the Office for National Statistics showed that the number of employees on the company payrolls in January rose by 83,000 from December, the second monthly increase and the highest since January 2015. The government’s Job Retention Scheme which is supporting about one in five employees suppressed unemployment.  This is the most expensive COVID economic support measure and will cost an estimated GBP 70 billion and is scheduled to expire on 30 April.  After Tuesday’s data, Sunak said that at the Budget of next week, he will set out the next stage of Plan for Jobs and the support to be provided through the remainder of the pandemic.  Meanwhile, Prime Minister Boris Johnson announced his plan for easing England’s lockdown on Monday that will keep some businesses shut until the summer but with a gradual reopening for others. 

Germany’s economy in the fourth quarter of last year

According to the Federal Statistics Office on Wednesday, strong exports and solid construction activity helped the German economy to grow by a stronger than expected 0.3% in the final quarter of last year.  The office has also revised upward its 2020 full-year GDP figure for Europe’s largest economy to -4.9% from -5%.  The Germany economy shrank by 5.3% last year, a much smaller contraction than in many other European countries.  The strong fiscal support helped to reduce the damage caused by the COVID-19 pandemic.  An overall state budget deficit of EUR 139.6 billion or 4.2% of gross domestic product in 2020 was created, the office said.  This was the first deficit since 2011 and the second-highest since German reunification. Exports grew by 4.5% on the quarter while household spending fell by 3.3%.  The Office said, that while net trade contributed 0.6% to the overall growth rate, sluggish domestic activity subtracted 0.3%.  Furthermore, the office said that investments in construction rose 1.8% on the quarter.

US House Budget Committee approves the $1.9 trillion COVID-19

The US house of representatives Budget Committee on Monday approved legislation with $1.9 trillion in new coronavirus relief.  The measure passed the panel on 19-16 votes as the US death toll from the coronavirus pandemic surpassed the 500,000 victims. Millions of employees have been left without a job.  The legislation is intended to stimulate the US economy and to carry out Biden’s proposals to provide additional money for COVID-19 vaccines and other medical equipment.  Biden and his fellow Democrats want to speed up the process for a new round of direct payments to US households as well as extend federal unemployment benefits and assist state and local governments. 


On Tuesday Bitcoin dropped below $50,000 as investors were becoming nervous about its high value and some took profits. Bitcoin dropped more than 10% its largest daily drop in a month to hit $48,575.  This extends a sharp withdrawal of more than 16% from a record high hit on Sunday, although bitcoin remains up around 75% for the year.  Meanwhile US Treasury secretary Janet Yellen who has raised the need to regulate cryptocurrencies more closely, said on Monday that bitcoin is extremely inefficient at conducting transactions and is a highly speculative asset. 


Commodity prices strengthened again on Tuesday with oil prices rising on a tight global supply outlook after US production was hammered by weather. A meeting of top crude producers to be held soon is expected to keep output largely in check.  Official data showed on Wednesday that the value of Saudi Arabia’s oil exports in December dropped nearly 30% in comparison with the previous year.  Whilst China remained the main trading partner of Saudi Arabia in December, Japan and India were Saudi Arabia’s next biggest export markets.  Oil prices edged higher on Wednesday amid continued outages in the US and a weaker dollar.  Brent crude futures gained 0.8% a barrel after hitting a session low of $64.80.  US West Texas Intermediate crude futures were up 0.6% at $62.04 a barrel after trading as low as $60.97 earlier on Wednesday. 

Market Wrap

European shares dropped on Monday amid concerns over the risk of higher inflation due to a jump in commodity prices that hampered the optimism of a recovery.  DAX dropped the most among its European peers by 0.31%.  Meanwhile, the Commissioner for Economy Paolo Gentiloni said that Europe will decide whether to extend the suspension of its rules limiting budget deficits and debt, known as the Stability and Growth Pact (SGP) in the coming weeks.  The pan-European STOXX 600 Index was 0.4% down after dropping as much as 1% led by declines in technology companies and retail stocks.  Yields in the eurozone dropped on Monday after European Central Bank President Christine Lagarde said the bank was closely monitoring increasing borrowing costs, which could indicate future ECB intervention in debt markets.  Travel and leisure stocks climbed on Monday after British Prime Minister Boris Johnson set out a phased plan to end the lockdown in the UK.  On Wall Street, high growth stocks such as Apple, Microsoft and Tesla weighed on the Nasdaq Composite as it shed 2.5% on Monday.    

European shares rose on Tuesday as strong commodity prices helped offset the mixed updates of corporate earnings. Energy and travel stocks gained the most.  Meanwhile investors awaited the testimony of the US Federal Reserve Chair Jerome Powell later in the day.  Asian stocks rebounded from two-week lows as the increase in commodity prices boosted the market expectations of an improved growth outlook. 

European shares rose on Wednesday supported by stronger than expected growth in Germany’s economy.  AstraZeneca fell 1.3% after it told the European Union that it expects to deliver less than half of the COVID 19 vaccines it was contracted to supply in the second quarter. 

Most Asian equities dropped on Wednesday amid persistent worries over steep valuations and the recent strength in US Treasury yields that hit risk sentiment, with local bond yields reaching to multi-year highs.  Eurozone bond yields steadied on Wednesday after rising a day earlier, with markets appearing reassured by the comments of US Federal Reserve Chair Jerome Powell that it would take time before the FED considered changing policy.  President Joe Biden said he would seek $37 billion in funding for legislation to supercharge chip manufacturing in the US as a shortfall of semiconductors led to US automakers and other manufacturers to cut production.  Biden also signed an executive order on Wednesday aimed at addressing the global semiconductor chip shortage. 

Thursday saw the London’s FTSE 100 rising helped by mining and energy stocks that tracked higher commodity prices.  Rio Tinto, Anglo American, BHP gained 1.5% and 3.6% on higher metal prices while oil heavyweights BP and Royal Dutch Shell also gained 1.2% and 0.8% respectively.  Global stocks climbed on Thursday after US Federal Reserve Chair Jerome Powell reaffirmed interest rates would stay low for a long time calming the markets that feared higher inflation that might prompt the central bank to tighten monetary policy.    In Asia the MSCI ex-Japan Asia Pacific shares index climbed 1.5% while Japan’s Nikkei gained 1.7%.  Hang Seng jumped 1.5% to match more than half of its previous day’s losses after the announcement of an increase in stamp duty.  On Wall Street the Dow Jones jumped 1.35% outperforming the 1% gains in tech heavy Nasdaq as investors moved into cyclical shares out of tech firms.  Meanwhile bond prices remained under pressure boosting their yields to the highest level in a year.  The 10-year US Treasury yield rose to 1.412% after having hit a high of 1.435% on Wednesday. 

Higher US real yields knocked nearly 3% from emerging market stocks on Friday, setting its biggest weekly drop since March 2020.  Asian bourses dropped sharply with Taiwan, Hong Kong and India shedding more than 3%.  Yields on US 10-year bonds slipped slightly on Friday however, they hovered near one-year highs hit in the last session. 

European shares tumbled 1.5% on Friday, led by minors and technology stocks whilst a jump in bond yields and concerns of high valuations negatively affected the demand for riskier assets. 

Currency Roundup

The US dollar resumed its slide on Monday and reached multi-year lows against the British pound and the Australian dollar as traders focused on the promise of the vaccinations and the outlooks of inflation and economic growth that could push bond yields higher.

The dollar touched its lowest since 13 January on Tuesday as investors’ focus was shifted on Jerome Powell and how he might respond to resurgent inflation, while commodity linked currencies traded near multi year highs.  Sterling hit a new early three-year high of $1.4098 up 0.3% on the day on bets by investors that a rapid vaccine rollout would allow the British economy to reopen over the next few months.  The Japanese yen is the worst performing major currency of 2021 due to the rising US Treasury yields that can draw investment from Japan.  The yen steadied at 105.13 per dollar.   

The euro on Thursday firmed slightly to touch a one month high of $1.2183 while the safe-haven yen stood at 105.93 per dollar.  The safe-haven US Dollar traded near three-year lows versus riskier currencies amid more dovish signals from the Federal Reserve. On Wednesday Fed Chair Powell reiterated that the central bank would not adjust the policy until there is a clear improvement in the economy. 

Malta:  Registered Unemployment – January 2021

In a press release dated 24 February, the National Statistics Office said that data provided by Jobsplus for January 2021 show that the number of persons registering for work stood at 2,675 increasing by 984 when compared to the corresponding month in 2020. 

Malta:  Harmonised Index of Consumer Prices – January 2021

In January 2021 the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) remained at a constant rate of 0.2%.  The largest upward impact on annual inflation was measured in the clothing and Footwear Index (+0.10%) while the largest downward impact was recorded in the Transport Index (-0.08%). The HICP measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services.

Malta:  Retail Price Index – January 2021

In January 2021, the annual rate of inflation as measured by the Retail Price Index (RPI) was 0.33% up from the 0.18% in December 2020.  The largest upward impact on annual inflation was measured in the Personal Care and Health Index (0.22%) while the largest decline was recorded in the Transport and Communication Index (-0.32%).  The Retail Price Index measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services.  It is closely linked to the cost-of-living adjustment (COLA) increases and periodic rent adjustments.

Antonella Mercieca

Client Relationship Manager


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


February 26th, 2021

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