“German Producer Prices…”

German producer prices climbed by 24.2% year on year in December, with the record annual jump driven by higher energy prices, showed official data on Thursday.  The increase from the previous month was the largest year-on-year increase for any month since the FED office began compiling the producer price numbers in 1949, said the office.  December’s figures were also higher following those of October and November at 18.4% and 19.2% respectively.  Producer prices also registered a record jump of 5% month on month against 0.8% in November.  Energy prices climbed up by 69% compared with December 2020, said the Federal Statistics Office.  Excluding energy prices, producer prices rose by 10.4% on the year.  Producer prices are a leading indicator for inflation as they are reflected at the factory gate, before products are processed further or are sold and can provide an early indication of consumer price trends.  

Inflation in the UK

Inflation in Britain rose faster than expected to its highest in nearly 30 years in December, increasing pressure on living standards and putting pressure on the Bank of England to raise interest rates again.  The annual rate of consumer price inflation increased to 5.4% from 5.1% in November, the highest since March 1992, said the Office for National Statistics.  Markets are now factoring in a more than 90% chance that the BOE will raise its main interest rate to 0.5% on 3 February.  Last month the BOE was the first major central bank to tighten policy since the start of the COVID-19 pandemic. 

China

On Monday China’s central bank cut the borrowing costs of medium-term loans with no warning. This had not happened since April 2020. The interest rate on 700 billion yuan was to be lowered to some financial institutions by 2.85% from 2.95% said the People’s Bank of China.  The world’s second-largest economy has shown signs of slowing after a rapid rebound from the effects of COVID-19. This brings about concerns about the financial health of important industries such as property developers and the rapid spread of the Omicron coronavirus variant clouding the outlook.

US Weekly jobless Claims

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week as COVID-19 infections disrupted business activity, which could limit job growth this month.  Initial claims for state unemployment benefits increased to a seasonally adjusted 286,000 for the week ending 15 January from 231,000 in the prior week, said the Labour Department on Thursday.  Employers are desperate for workers as reflected by the 10.6 million job openings at the end of November.  The unemployment rate is at a 22-month low of 3.9%, an indication that the labour market is at or close to maximum employment.  The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls’ component of January’s employment report.  Claims are higher than their level in mid-December.  The economy added 199,000 jobs in December, the lowest in a year. The workforce is about 2.2 million smaller than before the pandemic. 

Currency Roundup

US Dollar

Monday saw the dollar sticking to the bounce reached the week before as investors awaited January’s US Fed reserve meeting. The dollar was 0.2% higher at 114.45 yen early in the Asia session. It also moved about 0.1% higher on the euro to $1.1403. The dollar rose to a six-day high in early trade on Tuesday as U.S. Treasury yields rose, while the yen held steady. This after the Bank of Japan said it will maintain its ultra-loose monetary policy, which caused the currency to fall against the dollar. The Federal Reserve of the United States will meet next week. It is likely to raise rates for the first time since the coronavirus outbreak began in March, and investors are anticipating four rate hikes during 2022. The dollar strengthened against a basket of currencies, hitting a six-day high of 95.454 during Asian trading. At 1232 GMT it was at 95.385, up 0.2% on the day.  Dollar dropped on Thursday as the week’s rally in US Treasury yields paused, and currencies such as the Canadian and Australian dollars gained on rises in commodity prices and optimism about global economic growth.  The dollar has rallied in recent sessions, however, it has not performed as well as expected given the dramatic increase in expectations for the US FED Reserve to begin raising interest rates to curb soaring inflation.  US benchmark 10-year note yields were at 1.8469% off their two-year high of 1.902% reached early on Wednesday. 

Sterling

After a month-long rally for the sterling on Monday, it held at $1.3669 but according to analysts it could resume gains if inflation data makes the case for higher interest rates. Thursday, saw the sterling  and the euro rising gradually regaining some ground after suffering their worst days in a month on Tuesday, when the dollar was lifted by a jump in US Treasury yields.  The Euro was last at $1.1368 up 0.2% on the day.  The pound was 0.2% higher at $1.3636 and the yen was unchanged at 114.33 per dollar. 

Market Wrap

On Monday, stock markets were volatile as a spate of Chinese economic data revealed the stifling effect of coronavirus restrictions on consumer spending, leading Beijing to loosen monetary policy once more.  In the US, worryingly, retail sales climbed only by 1.7 % year over year in December, falling short of an expected 3.7 % increase. Nasdaq futures dropped by another 0.3.%, whilst the S&P futures lost 0.1%.  Whilst Monday was a Public Holiday in the US, European markets traded with the CAC 40 edging higher by 0.821% closing at 7,201.64, the DAX also traded higher by 0.318% closing at 15,933.72, the FTSE closed at 7,611.23 higher by 0.91%.

On Tuesday, Wall Street’s main indices were set to open lower amid a drop in technology stocks arising from an increase in treasury yields. The S & P technology index (SPLRCT) has dropped 4.8% so far, since the start of 2022 and the decline in Goldman Sachs amongst large banks posting its quarterly profit lower than expected. The two-year treasury yields which track short-term rate expectations crossed the 1% for the first time since February 2020 as traders expected a more hawkish federal reserve ahead of its policy meeting next week. The Dow Jones Industrial Average dropped by 1.51% closing at 35,368.47, NASDAQ 100 dropped 2.57% to close at 15,210.76, while the S&P 500 closed lower by 1.84% to close at 4,577.11.  European markets also dropped with the CAC 40 dropping by 0.942% to close at 7,133.83, DAX closed lower by 1.011% to reach 15,772.56 while the FTSE 100 closed lower by 0.63% to close 7,563.55.   European shares were also affected by the pressure on Tech stocks arising from the increase in the two-year US Treasury yields.  The panEuropean STOXX 600 index dropped 0.9%, with tech stocks .SX8P declining 1.5% after US Treasuries dropped along the curve.  Meanwhile, the FTSE 100 index in London fell on Tuesday, weighed down by consumer and industrial stocks, as better employment circumstances in the UK and rising US Treasury yields signalled increased bets on tighter monetary policy. Since the beginning of the year, the FTSE 100 has outperformed the wider STOXX 600 (.STOXX), as bets on higher interest rates boosted bank stocks and higher oil prices boosted energy sectors.  Meanwhile, most developing Asian stock markets dropped on Tuesday as investors braced for faster interest rate hikes in the United States after treasury yields touched pre-pandemic highs, while currencies lost their lustre as the dollar rose. Thursday saw the Dow Jones Industrial Average dropping by 0.89% at 34,715.39, the NASDAQ 100 dropping by 1.34% closing lower at 14,846.46, while the S&P 500 closed lower by 1.10% to reach 4,482.73.  The NASDAQ which has been the standout performer of the stock market boom since the pandemic begun, has fallen more than 10% from its peak and is on track for its worst week since 2020.  Meanwhile, European stocks such as the CAC 40 increased by 0.295% to close at 7,194.16, the DAX closed higher by 0.649% to reach 15,912.33 whilst the FTSE 100 closed lower by 0.06 to reach 7,585.01.  Meanwhile on Friday European shares dropped, following on from losses in Asia and a number of weaker than expected earnings affected investor confidence again.  In Europe the Euro Stoxx dropped by 1.55%, the FTSE 100 by 1.1% while the German DAX also dropped by 1.24%. Futures signalled more losses in the US when Wall Street opened.     

Gold

Monday saw gold prices holding steady as the market gauged the global economic policy outlook.  Spot gold rose 0.2% to $1,820.80 per ounce whilst US gold futures rose 0.3% to $1,821.20. Gold prices slipped on Tuesday as investors awaited further information on the Federal Reserve’s interest rate plan at its policy meeting next week. Spot gold fell 0.7% to $1,806.72 per ounce by 1325 GMT. U.S. gold futures fell 0.6% to $1,806.  Gold rose more than 1% on Wednesday with spot gold climbing by 1.5% to close at $1,840.91 per ounce while US gold futures settled up 1.7% at $1,843.20.  A slide in the dollar made bullion cheaper for buyers holding other currencies, while a retreat in the benchmark 10-year treasury yields from a two-year peak also raised the demand for the metal. 

Oil

Oil prices rose more than $1 on Tuesday to a more than seven-year high on concerns of a possible supply-disruption after Yemen’s Houthi group attached the United Arab Emirates, this has put pressures between the Iran-aligned group and a Saudi Arabian-led coalition.  Brent crude rose futures 1.6% to $87.85 a barrel whilst US West Texas Intermediate (WTI) crude futures jumped 2% from $85.53 a barrel. Meanwhile trade on Monday was restrained due to a Public Holiday in the US on Monday.  On Tuesday, both benchmarks climbed to their highest levels since October 2014. On Thursday, oil edged lower posting slight losses after several days of strength that pushed benchmarks to seven-year highs due to concerns about tight supply.  Brent crude futures settled down to $88.38 a barrel rising by 6 cents.  The global benchmark rose to $89.17 on Wednesday, its highest level since October 2014 the benchmark is up 13% on the year so far.  The US West Texas Intermediate (WTI) crude futures for February delivery lost 6 cents to $86.90 a barrel on the last of its contract’s life.  WTI is up 15% so far this year.   Friday saw oil prices pulling back amid a bout of risk aversion that spread across markets and sent traders looking for safety in government bonds. 

Malta:  Harmonised Index of Consumer Prices (HICP) – December 2021

A press release dated 20 January, 2022 shows that in December, 2021 the annual rate of inflation as measured by the HICP was 2.6% up from 2.4% in November, 2021.  The largest upward impact on annual inflation was measured in the Food and non-alcoholic beverages Index (+0.9%) while the largest downward impact was recorded in the Communication Index (-0.07%).

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