“Federal Reserve Meeting …”

Federal Reserve Meeting

It has been a month like no other for the Federal Reserve.  The meeting was the first held by the FED since it took emergency steps in March and April to stabilize financial markets.  On Wednesday the Federal Reserve left interest rates near zero and repeated on its vow to do what it takes to cushion the US economy amid the coronavirus pandemic that will not only have a short term impact but also “considerable risks” for the medium term. In a statement at the end of a two-day policy meeting held using videoconferencing FED Jerome Powell said, “The Federal Reserve is committed to using its full range of tools to support the US economy in this challenging time, thereby promoting its maximum employment and price stability goals.”  In its statement the FED noted that “weaker demand and significantly lower oil prices are holding down consumer price inflation” and that “disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to US households and businesses.”  It said that it will continue to buy US Treasuries and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth markets, and to offer large-scale overnight and term repurchase agreement operations.     The FED said it expects to maintain the target range for its benchmark overnight lending rate at the current 0 percent to 0.25 percent, “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”   After the end of the policy meeting FED Chair Jerome Powell was not very optimistic that the economy will return to near-record low unemployment and solid growth of just a few weeks ago.  He also said that a first phase of a recovery might happen soon as some US states and restaurants are reopening under tightened rules which are meant to sustain progress.  The economy could pass through a recurring cycle of tentative reopening followed by re-imposition of restrictions to fight new outbreaks.  Powell also said he expects an “unprecedented” drop in the second-quarter GDP and for unemployment to increase.  He added that it will also “take some time for consumers to start spending again once the economy begins to reopen.”

Bank of Japan

The Bank of Japan expanded monetary stimulus on Monday and pledged to buy unlimited amount of bonds to keep borrowing costs low.  The action taken by the BOJ is in line with other major central banks.  The central bank has also sharply cut its economic forecast and the projected inflation would fall well short of its 2 percent target for three more years.  Bank of Japan Governor Haruhiko Kuroda said in a conference that “the spread of the coronavirus at home and abroad is inflicting a severe impact on Japan’s economy.”  So as to ease corporate funding strains, the BOJ said, it boosts by three-fold the maximum amount of corporate bonds and commercial debt it buys to 20 trillion yen.  The statement said, “The BOJ will purchase the necessary amounts of government bonds without setting an upper limit” to keep long-term interest rates around its 0 target.”  The central bank said it would buy government bonds and short-term securities “actively” for the time being to keep markets stable as the government issues more bonds to pay for its huge stimulus package. The BOJ also kept its interest rate targets unchanged.  The Bank offered to pay 0.1 percent interest to financial institutions to tap its new loan programme.  This move is aimed at encouraging commercial banks to companies with cash shortage.

European Carmakers: Restart Of Production

On Monday Volkswagen restarted production at its factory in Germany taking the opportunity like other European carmakers from the easing of the coronavirus measures.  As the rate of infections in Germany dropped, Germany has allowed small retail stores to reopen as long as they adhere to strict distancing and hygiene rules.  Large corporations are following suite.  Workers also need to wear masks and keep distance from one another.    BMW is cranking up engine manufacturing starting on 4th May.  Fiat Chrysler will open its Sevel plant in central Italy on Monday with plans to resume production at a rate of between 70 percent and 80 percent.  Meanwhile in France, Toyota has restarted an assembly plant in Valenciennes, while Renault started to produce engines at its factory in Cleon.


Oil prices fell on Monday on signs that worldwide oil storage is filling rapidly raising the worries that production cuts will not happen quickly to make up for the loss in demand amid the coronavirus.  US oil futures dropped more than $2 a barrel amid fears that the storage at Oklahama could reach full capacity soon.  US crude inventories increased to 518.6 million barrels which is close to an all-time record of 535 million barrels set in 2017.  Oil futures have marked their straight week of losses last week.  Kuwait and Azerbaijan are coordinating cuts while Russia is set to reduce its western seaborne exports by half in May.  Meanwhile, OPEC + pledged this month to cut output by 9.7 million barrels per day in May and June.  On Tuesday US crude prices settled about 3 percent lower after data showed that domestic stockpiles did not rise as high as had been expected given tightening storage despite pledges to cut production from 1 May.  US West Texas Intermediate (WTI) crude was down 44 cents or 3.4 percent a barrel (on Monday the contract plunged 25 percent), whilst global benchmark Brent crude settled up 2.3 percent at $20.46 a barrel following a drop of 6.8 percent on Monday.    Meanwhile, on Wednesday US oil prices gained recovering some of this week’s losses as US stockpiles rose less than expected.  US West Texas Intermediate crude were up 12.6 percent or $1.56 at $13.91 while Brent crude futures rose 3.1 percent to $21.10 a barrel.   On Wednesday Credit rating agency Moody’s cut its oil price assumptions seeing WTI averaging $30 a barrel in 2020 and $35 in 2021 amid the global recession weighing on fuel demand and said it expected ample oil supply in storage to keep prices low through 2021.  Oil futures slumped after the largest U.S. oil exchange-traded fund said it would sell all its front-month crude contracts to avoid further losses as prices collapse.

Market Wrap

European shares rose on Monday as the airline stocks soared on hopes of state support. Meanwhile, an update from Deutsche Bank and others added to indications that countries will soon ease the lockdown measures.  Milan listed shares rose 2.2 percent after ratings agency S&P Global on Friday affirmed Italy’s credit rating saying the country’s diversified and wealthy economy and net external creditor position offset a drag from high public leverage.  Meanwhile, Germany’s DAX also got a boost from drugs and pesticides company Bayer which gained 3.1 percent after its first-quarter quarter adjusted core earnings.  The pan-European STOXX 600 rose 1.5 percent following the gains in Asian markets after the Bank of Japan pledged to buy unlimited amount of bonds to keep borrowing costs low.  As policymakers injected trillions of dollars into the global economy the benchmark has recovered about 25 percent from mid-March.    Eurozone bond yields fell on Tuesday as the benchmark German government bond yield dropped around one basis point amid a renewed decline in oil prices that are overshadowed by the easing of the lockdown.  Italy’s 10-year government bond fell 6 basis points, hitting new two-week lows.  Meanwhile the spread between German and Italian 10-year government bond yields narrowed by as much as 6 basis points to 214.1 bps, which is the lowest in nearly two weeks.  Asian shares extended their gains for a third session on Wednesday amid the ease of the lockdowns in some parts of the world.  Positive news on the potential treatments for the infection and the developing of a vaccine have also boosted sentiment recently.  The Dow Jones Industrial Average fell 0.3 percent, the S&P 500 lost 0.5 percent and the tech-heavy NASDAQ Composite dropped 1.4 percent.  Meanwhile, France and Italy set out their plans how to ease the lockdown measures on Tuesday after Italy also announced how it would re-open its economy.  On Wednesday after the release of the statement by the FED, US stock markets pared some of the day’s strong gains but the benchmark S&P 500 remained on track for its largest daily gain in nearly two weeks, and closed the session higher.  Yields on US Treasury securities were little moved by the statement. On Thursday world stocks headed for their best month amid encouraging early results from a COVID-19 treatment trial and expectations of more stimulus from the European Central Bank later in the day.

Currency Roundup

The US Dollar fell across the board on Monday as traders turned more positive and less risk averse amid the easing of coronavirus lockdown restrictions in some countries.  The US Dollar was weaker against the Japanese yen and the euro as investors perceive turned more positive about Italy.  The dollar dropped 0.3 percent versus the Japanese yen to trade at 107.23 yen after having dropped to a two-week low of 106.93 yen.  On Wednesday, the dollar weakened against the Japanese yen to 106.52 on concerns the coronavirus could spread further if businesses reopen prematurely.  The euro was up 0.3 percent at $1.08488, however, the euro index eased following Italy’s credit rating cut by Fitch to BBB-, just one notch above “junk” status.  The dollar also eased amid the slowing spread of the coronavirus and moves to re-open economies encouraged investors to go for riskier assets.  There was however caution ahead of the central bank meetings both in the US and Europe.  Sterling rose against the dollar on Wednesday for the same reasons as easing of coronavirus measures.  Sterling rose 0.2 percent against the weaker dollar at $1.2443.  The euro also strengthened versus the dollar while the pound was down around 0.3 percent versus the euro.  England is expected to have one of the worst coronavirus death toll as the number of fatalities topped 24,000 nine days ago.  After the FED meeting and the issue of the statement the dollar edged lower against a basket of key trading partner currencies.


The British Retail Consortium showed that British retailers cut prices of non-food items by the most since at least 2006 this month as they tried to shift stock they are struggling to sell amid the coronavirus.


Economy in the US has contracted in the first quarter at its sharpest pace since the Great Depression due to the measures taken to control the spread of the pandemic.  The decline in gross domestic product (GDP) reflects a plunge in economic activity in the last two weeks of March, that caused many Americans to fall on unemployment benefits.  The first quarter GDP figures by the Commerce Department reinforced the expectations by many analysts that the economy is already in deep recession.  Gross Domestic declined at a 4.8 percent annualised rate last quarter, weighed down by sharp drops in consumer spending and a drawdown of inventory of businesses.  This was the steepest pace of contraction in GDP since the fourth quarter of 2008.  The Commerce Department’s Bureau of  Economic Analysis (BEA) said that it could not quantify the full effects of the pandemic but the virus had partly contributed to the decline in GDP in the first quarter.  It further said that stay at home measures in March had “led to rapid changes in demand, as businesses and schools switched to remote work or cancelled operations, and consumers cancelled, restricted or redirected their spending”.

Motor Vehicles: First Quarter 2020

At the end of March 2020, the stock of licensed motor vehicles stood at 397,391. During the quarter under review, the stock of licensed motor vehicles decreased at a net average rate of one motor vehicle per day compared to the previous quarter. Newly licensed motor vehicles put on the road during the period under review amounted to 5,269.  Taking stock by type of car as at the end of March this year, 236,274 motor vehicles or 59.5 per cent of the total had petrol-powered engines. Diesel-powered motor vehicles reached 154,634 or 38.9 per cent of the total. Electric and hybrid motor vehicles accounted for 1.2 per cent of the entire stock, with a total of 4,803 motor vehicles.  When compared to the previous quarter, increases of 6.6 per cent, 14.3 per cent and 7.0 per cent were registered in the electric, hybrid/diesel and hybrid/petrol motor vehicles.

Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt


April 30th, 2020

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