“German Election…”

Germany’s Social Democrats who narrowly won Sunday’s national election, showed projected results and claimed a “clear mandate” to lead a government for the first time since 2005 ending 16 years of conservative led rule under Angela Merkel. With neither major bloc commanding a majority the most likely outcome is a three-way alliance led by either the Social Democrats or Merkel’s conservatives. Agreeing a new coalition could take months and would likely involve the smaller Greens and liberal Free Democrats (FDP).   The German Social Democrats said on Tuesday they hoped to talk to the Green and Free Democrats later in the week about forming a three-way government.  The Greens and the liberal FDP who are far apart in many issues, have said they will first talk to each other to seek areas of compromise before starting negotiations with either the SPD or the conservatives. 

German import prices rise at fastest rate

German import prices increased at the fastest pace in 40 years last month, driven by a jump in the price of oil and gas and supply chain bottlenecks.  Import prices jumped 16.5% in August from a year earlier, said the Federal Statistics Office on Wednesday.  The increase in August was the steepest rise since September 1981 when the second oil crisis pushed prices up by 17.4%.  The Statistics Office added that the price of energy imports was up 93.6% in August compared with a year earlier, mainly due to a strong rise in the price of natural gas.  Furthermore, a survey published by the Ifo institute on Wednesday shows that at the same time, supply chain bottlenecks affecting German companies worsened further.  Ifo added that some 77.4% of German industrial firms reported difficulties procuring intermediates and raw materials this month.  Among car companies that figure was at 97%.

German Unemployment

German unemployment dropped in September, showed official figures on Thursday suggesting that supply chain bottlenecks hitting industrial firms have not yet impacted the economy.  The Labour office said the number of people out of work dropped by 30,000 in seasonally adjusted terms to 2.507 million.  

French Consumer Confidence

French consumer confidence improved more than expected in September as households’ concerns about unemployment eased, showed a monthly survey on Tuesday.  The INSEE official statistics agency said its consumer confidence index rose to 102 from 99 in August, hitting its highest level since June.  With the economy rebounding strongly as the coronavirus eases, concerns about employment dropped to their lowest level since February 2020 just before the outbreak of the coronavirus.  With regards to jobless claims, the Labour Ministry said it dropped by 51,100 in August to 3,308,700 just above the level seen before the crisis started. 

French Inflation

French inflation increased in September slightly less than expected however, still reached its highest rate in nearly a decade, showed preliminary data from the INSEE statistics agency on Thursday.  INSEE said its EU-harmonised consumer prices index fell 0.2% from August, giving a 12-month inflation rate of 2.7% up from 2.4% in August.  The September rate was the highest since December 2011.   As is happening in other countries, surging energy prices are driving inflation spike in France.  INSEE said they rose 14.4% over one year in September.  

Eurozone Sentiment

Eurozone sentiment edged higher in September after August’s drop, boosted by optimism among consumers and in the industry and construction sectors.   Meanwhile, inflation expectations continued to rise among manufacturers and consumers alike.  The European Commission’s economic sentiment indicator climbed to 117.8 in September from 117.6 in August after hitting an all-time high of 119 in July.  Commission data also showed sentiment in industry improved to 14.1 from 13.8 in August however, it actually declined in services to 15.1 from 16.8.  Consumers became more optimistic as well with a reading of -4 up from -5.3 in August.  The construction sector indicator rose to 7.5 from 5.5 offsetting the decline in retail sector to 1.3 from 4.6.  The economic rebound after the COVID-19 pandemic and the rapidly rising energy prices also drove higher inflation expectations among consumers and manufacturers. 

UK Economy

The UK Economy grew by more than previously expected in the April-June period.  Gross domestic product increased by 5.5% in the second quarter, said the Office for National Statistics which is stronger than its estimate of 4.8%.  The ONS said that the data had been adjusted to take account of more complete data from the health sector as well an update of its sources and methodology for calculating British economic output.  The figures provide a complete picture of Britain’s economic bounce back from its coronavirus lockdown earlier in the year.  However, there are now signs of a loss of momentum due to shortages of supplies and staff as the global economy reopens.  The data released on Thursday shows that households increased their spending by almost 8% in the April to June period, dipping into the coronavirus lockdown savings to fund it.  The ONS further added that the savings ratio, which measures the income households saved as a proportion of their total available disposable income, dropped to 11.7% from 18.4% in the first quarter of 2020.  Growth in GDP was driven by the services sector, especially in the accommodation and food industry where output rose by 87.6% in quarterly terms as it reopened from lockdown. Manufacturing output rose by 1.8% in the second quarter despite a shortage of microchips hurting car production.  Food and beverage manufacturing performed strongly.  The ONS said construction output had in general returned to its pre-pandemic level. Data showed that Britain’s current account deficit with the rest of the world held steady at 8.6 billion pounds in the second quarter, equivalent to 1.5% of gross domestic product. 

US Business Spending

New orders and shipments of key US made capital goods increased solidly in August amid strong demand for computers and electronic products, keeping business spending on equipment on track for another quarter of robust growth.  The strength in business investment is expected to limit the hit on economic growth from an anticipated slowdown in consumer spending in the third quarter as the boost from fiscal stimulus fades and COVID-19 infections flare up.  Demand for goods is driven by the urge for businesses to replenish inventories however, strained supply chains remain a challenge.  The Commerce Department said on Monday, that orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month.  Orders shot up 16.4% on a year-on-year basis and 15% above their pre-pandemic level.  This is boosting manufacturing which accounts for 11.9% of the economy.  An acute shortage of labour as well as raw materials such as semiconductors are making it harder for factories to fulfil orders. 

People Bank of China (PBOC)

The China’s central bank vowed to protect consumers exposed to the house market on Monday and injected more cash into the banking system as the Shenzhen government started its investigation of the wealth management unit of Evergrande.  With liabilities of $305 billion, Evergrande has raised concerns its problems could spread through China’s financial system and around the world.  The People’s Bank of China injected a net 100 billion yuan ($15.5 billion) into the financial system on Monday, adding to the net 320 billion yuan last week, the most since January.

US Consumer Confidence

US consumer confidence fell to a seven-month low in September amid an increase in COVID-19 cases that raised concerns about the economy’s near-term prospects.  The survey from the Conference Board on Tuesday showed consumers are less interested in buying home and big-ticket items such as motor vehicles and major household appliances over the next six months.  Consumers’ views were also not upbeat in their view about the labour market as in the prior month.  Economic activity has cooled in recent months as the boost from pandemic relief money faded and infections increased by the Delta variant.  The Conference Board said its consumer confidence index dropped to a reading of 109.3 this month from 115.2 in August.  The third straight monthly decline pushed the index to the lowest level since February. 

China Manufacturing

China’s factory activity unexpectedly shrank in September amid wider curbs on electricity use and increased input prices, while services returned to expansion as COVID-19 outbreaks eased.  The official manufacturing Purchasing Manager’s Index (PMI) was at 49.6 in September against 50.1 in August, showed data from the National Bureau of Statistics on Thursday, ending into contraction for the first time since February 2020.

Currency Roundup

US Dollar

The US Dollar gained for a second straight session on Monday amid the rise in Treasury yields ahead of a number of Federal Reserve speakers this week.  Fed speakers were in focus this week led by Chair Jerome Powell who will join Treasury Secretary Janet Yellen in speaking before Congress on Tuesday.  The dollar rose 0.2% versus the yen to 110.925 yen after earlier rising to a near three- month high. It gained 0.4% versus the Swiss franc to 0.9275 francs.    

Tuesday saw the dollar climbing to its highest in more than five weeks, while other major G10 currencies dropped, as higher US Treasury yields made the dollar more attractive to investors. 

Euro

Monday saw the euro dropping against the dollar to $1.1692.  Against a weakening euro, the pound hit a 10-day high trading at 85.29 pence.  On Tuesday the euro was down 0.1% versus the dollar at $1.1686.  The euro which fell to a one-month low overnight traded at $1.1687 and was close to testing major support around its 2021 low of $1.1664 and its November 2020 low of $1.1602. 

Sterling

Sterling rose on Monday as expectations that the Bank of England could increase interest rates early next year gave some support however fears of a tough winter for the British economy capped its gains. Petrol stations ran dry in English cities amid a shortage of tanker drivers, while there are also worries about the potential impact on unemployment once a furlough scheme introduced to lessen the effects of the pandemic is ended.  Sterling which is considered a risk sensitive currency also gained some support on Monday amid fears of a widespread market contagion from indebted developer China Evergrand Group receded.  On Tuesday sterling dropped to an almost 10-week low versus a strengthening dollar after US Treasury yields jumped to the highest in almost three months following hawkish US Federal Reserve remarks. The risk sensitive sterling was down 0.7% at $1.3608 after hitting its lowest level since mid-July at $1.3594.

Market Wrap

On Monday US benchmark 10-year Treasury yields hit a three-month high of $1.516.  US yields climbed to their highest since late June in anticipation of tighter US monetary policy after the FED announced last week that it may start tapering stimulus as soon as November and flagged interest rate increases may follow sooner than expected.  

On Tuesday US markets dropped with the Dow Jones Industrial Average dropping 1.63% to 34,299.99, the NASDAQ 100 dropped 2.86% to 14,770.30 whilst the S&P 500 dropped 2.04% to 4,352.63.  Meanwhile European markets such as the CAC 40 declined by 2.17% to 6,506.50, the DAX dropped 2.09% reaching 15,248.56 and FTSE 100 dropped -0.50 to 7,028.10.  European stocks sank to their lowest in a week on Tuesday due to a surge in government bond yields that affected high-growth technology shares, with fresh signs of a slowdown in China’s economy weighing on investor sentiment.  Technology stocks dropped 3.7% to hit a one-month low after Wall Street peers tumbled overnight.  They are sensitive to rising interest rate expectations as their value relies on future earnings, which are discounted more deeply when rates go up.   

London FTSE 100 rose on Wednesday led by financial and healthcare stocks. The index closed higher by 1.14% to 7,108.16.   European stocks steadied on Wednesday with investors shifting their investments to defensive healthcare stocks amid concerns about growth and inflation.  CAC 40 increased by 0.83% to 6,560.80 while DAX increased by 0.77% to reach 15,365.27.  European tech sector remained under pressure up just 0.5% after losing 4.8% on Tuesday.  Global shares dropped for a third successive day on Wednesday, while bond yields soared on anxiety over when central banks might raise interest rates. In the US, the Dow Jones Industrial Average increased by 0.26% to 34,390.72, the NADSAQ 100 declined by 0.12% to 14,752.89 while the S&P 500 increased by 0.16% to 4,359.46. 

Oil

OPEC sees the demand for oil growing sharply in the next few years as the global economy recovers from the pandemic, adding that the world needs to keep investing in oil production to avoid a crunch even as the energy transition is under way. Oil prices gained for a fifth straight day on Monday with Brent crude up 1.8% to $79.47 a barrel, having posted three straight weeks of gains. US crude futures rose 1.8% to $75.33 a barrel, its highest since July after rising for a fifth straight week.  Oil markets climbed for a sixth day on Tuesday, reversing earlier losses on fears over tight supply while surging prices of liquefied natural gas (LNG) and coal also lent support.  Brent crude futures gained $1.05, or 1.3% to $80.58 a barrel after reaching its highest since October 2018 at $80.75 earlier in the session.  It surged 1.8% on Monday.  Meanwhile US West Texas Intermediate crude futures rose $1.06 or 1.4% to $76.51 a barrel, the highest since 6 July.  It jumped 2% the previous day. 

Gold 

Gold prices fell to a 1 1/12 month low on Tuesday, as a firmer dollar and soaring treasury yields reduced the metal’s safe-haven appeal as indications show the US Federal Reserve could be shifting towards a tighter policy. Spot gold hit its lowest level since 11 August at $1,735.40 per ounce and was down 0.5% at $1,740.97.  Gold moved up on Wednesday as a slight dip in US bond yields provided some support against growing expectations of quicker than expected US interest rate hikes that also pushed the dollar to a multi-month high.  Spot gold rose 0.3% to $1,739.34 per ounce.  US gold futures edged 0.2% up to $1,740.20.  Higher yields raise the opportunity costs of holding non-interest-bearing bullion. 

Malta:  Industrial Producer Price Indices – August 2021

A press release dated 28 September, 2021 shows that when compared to August 2020, the industrial producer price index increased by 4.22% when compared to the corresponding month of the previous year.  Intermediate goods, consumer goods and capital goods rose by 7.82%, 2.82% and 1.16% respectively.  Industrial producer prices for the domestic market increased by 1.38%.  Price rises were recorded in intermediate goods (5.56%) and consumer goods (0.4%).  Capital goods dropped by 0.06%.  Non-domestic prices increased by 6.04%.   Meanwhile, during August 2021 the industrial producer price index increased by 1.99% when compared to July 2021.  Intermediate goods and capital goods rose by 4.83% and 0.16% respectively.  Whilst consumer goods dropped by 0.09%, there were no price changes in the energy sector.  Domestic market prices decreased by 0.09% due to drops in consumer goods (0.21%) and intermediate goods (0.11%).  Non-domestic market prices increased by 3.32%. 

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