“Gold…”

Source: Reuters

The deteriorating relationship between the US and China and the low hope of quick economic recovery increased the demand of the safe-haven asset as it has risen nearly 28 percent so far this year. Gold gave up gains on Tuesday after reaching record highs as the dollar regained some ground.  Spot gold was steady at $1,941.23 per ounce but off its peak of $1,980.57 possibly due to profit taking.  Traders also took note of the data showing gold consumption from traditional top buyer China fell 38.25 percent in the first half of the year.    Meanwhile the World Gold Council said that a record-breaking flood of gold investment that has driven prices to all-time highs was insufficient to stop a collapse in jewellery sales from cutting global demand for metal by 6 percent in the first half of 2020.  The pandemic has boosted the stockpiling of gold in Europe and North America as insurance against inflation and market turmoil, driving prices up almost 30 percent this year to more than $1,950 an ounce.  Meanwhile silver dropped 0.7 percent after rising as much as 6.4 percent to $26.19 per ounce its highest since April 2013. 

German Exports

Export expectations in Europe rose to 6.9 points in July from -2.2 the previous month thanks to an economic recovery in many countries, said the Ifo institute on Tuesday.  The Ifo further added that “Cautious optimism is spreading among German exporters,” It also said, “The automobile sector is one of the biggest winners. After some very tough months, the export business should pick up again.”

Germany’s GDP Reading

The German economy contracted by 10.1 percent in the second quarter representing the steepest drop on record due to a collapse in household spending, business investment and export, showed data on Thursday. The statistics office said, “this was the sharpest decline since the quarterly GDP calculations for Germany began in 1970.  In comparison with the second quarter of last year, Europe’s largest economy declined by 11.7 percent from April to June, showing seasonally adjusted figures from the Fed’s Statistics Office. 

The Bundesbank about the German Economy

On Monday the Bundesbank said that the German economy is rebounding and may well continue to do so in the second half of the year, supported by the government’s fiscal stimulus measures taken in response to the coronavirus outbreak.  “In the second half of the year, the economic recovery could continue,” the Bundesbank said in its monthly report. “The recent stimulus package will also contribute to that.”  It further added that it expected the pandemic-related global slowdown in trade to bring down the country’s oversized current account surplus.    This has caused criticism both within the EU and by Donald Trump’s US administration for causing macro-economic imbalances.  The Bundesbank expects Germany’s current account surplus at less than 5 percent of the country’s gross domestic product each year until 2022, down from more than 7 percent last year. 

US Consumer Confidence

US consumer confidence fell more than expected in July amid a rise in COVID-19 infections across the country which is threatening the economy’s recovery.  The survey from the Conference Board on Tuesday showed how consumers are gloomy about the economy’s prospects over the next six months.  The reason for the lack of confidence, is the jobless supplement of $600 which is due to expire to the millions of unemployed Americans.  The consumer confidence index dropped to a reading of 92.6 this month from 98.3 in June.   Although the reopening of businesses has boosted economic activity in recent months, the country is struggling to contain the resurgence of the virus. 

COVID- 19

The infection rate in the US may be stabilising with a 2 percent drop in the number of new cases last week however the consequences from the measures to restrict its spread and the job losses is now starting to be felt.    New restrictions were imposed on Monday in nations in Asia, while Britain applied an abrupt British quarantine on travellers from Spain.  Meanwhile surges were reported in several countries that previously appeared to have been under control.  The World Health Organisation (WHO) said that travel restrictions were not a long-term solution.  Social distancing strategies and face covering must be employed to stop the virus spreading. 

FED Meeting

The FED met during the week for a two-day meeting on Tuesday and Wednesday.  The FED said on Tuesday it will extend several of its lending facilities through the end of the year, a sign that the economic impact of the coronavirus pandemic has been more prolonged than expected.  In a statement the FED said that the extensions apply to those facilities that were due to expire on or around 30 September including Primary Dealer Credit Facility, Money Market Mutual Fund Liquidity Facility, Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility, Term Asset-Backed Securities Loan Facility, Paycheck Protection Program Liquidity Facility and Main Street Lending Program.  The FED left its policy decision steady leaving the interest rates near zero, with key decisions likely to come after it is clearer where the health crisis is heading and just what action Congress takes to support struggling businesses and unemployed workers.  All FOMC members voted to leave the target range for short-term rates between 0% and 0.25%, the same as it had been since March 15.  Fed Chair Jerome Powell, the head of the Federal Reserve, said on Wednesday that the surge in the US coronavirus cases is beginning to weigh on economic activity and promised that the US Central bank would “do what we can and for as long as it takes,” to limit damage and boost growth.  “It looks like the data are pointing to a slowing in the pace of the recovery,” he added at a news conference, amid an apparent retreat by consumers and a reduction in the rehiring of furloughed workers particularly by small businesses.   He further added that the US has “entered a new phase in containing the virus, which is essential to protect both our health and our economy”.  Powell also said that the virus is moving so fast that that policymakers are taking cues about the economy from real-time flows of data from firms that track people’s movements through cellphones, for example or provide signals about hiring.    The Federal Open Market Committee (FOMC) said “the path of the economy will depend significantly on the course of the virus.” 

The US Economy’s Second Quarter

The US economy contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic hammered consumer and business spending.  Recovery is impacted by a resurgence in new cases.  Gross domestic product collapsed at an annualised rate of 32.9 percent last quarter, the deepest decline in output since the government started keeping records in 1947, said the Commerce Department on Thursday.  The drop in GDP was more than triple from the previous all-time decline of 10% in the second quarter of 1958. The economy contracted at a 5.0% pace in the first quarter. The majority of the drop in GDP occurred in April when activity almost stopped as restaurants, bars and factories among others were closed in mid-March.  Although activity picked up in May, momentum has slowed due to the resurgence of COVID cases which swiped any hopes of a sharp growth in the third quarter.  On a different note, the US President Donald Trump on Thursday raised the possibility of delaying the presidential election which is due in November. 

Fitch Lowers Japan’s Credit Outlook 

Fitch the rating agency on Wednesday lowered its outlook on Japan’s long-term foreign currency debt rating to negative from stable amid the impact from the coronavirus and the rising public debt as policymakers will try to get the economy back on track.  Fitch said, “the coronavirus pandemic has caused a sharp economic contraction in Japan, despite the country’s early success in containing the virus.” The global rating agency affirmed Japan’s rating at “A”.  Japan’s economy is expected to have contracted sharply in the second quarter as the coronavirus crisis hit global demand and a national state of emergency from mid-April to late May slowed consumer and business activity.  Despite the emergency status has been lifted by the government, a recent spike in infections could put renewed pressure on the economy.  Fitch projects Japan’s economy to shrink by 5 percent in 2020 and is expected to rebound to 3.2 percent in 2021. 

Currency Roundup

The dollar bounced off a two-year low on Tuesday as selling pressure faded ahead of the FED meeting.  The world’s reserve currency has been falling since May.  The Japanese Yen weakened 0.3% to reach just below its strongest since mid-March and the euro was last 0.2 percent at $1.1725.  The Aussie dollar gave up the earlier gains dropping 0.2 to $0.7133.  Sterling pulled back from a four-month high on Tuesday amid negative news from the Brexit negotiations caused hedge funds to take profits.    Concerns about the lack of progress of Brexit negotiations also prevented the pound from pushing above the $1.30 levels. The pound slipped 0.2 percent lower versus the dollar at $1.2878 after rising to its highest level since March at $1.2977 in early Asian trading.  It was little changed against the euro at 91.14 pence.  Lack of progress about the Brexit negotiations also prevented the pound from pushing above the $1.30 levels.  The European Union says that the deal needs to be done by October to allow for ratification by the end of the year.  Meanwhile, the euro retreated from its two-year high on Tuesday as the dollar declined before a two-day Federal Reserve meeting.  Some of the dollar weakness was brought about by the next US fiscal rescue package.  The republican leadership of the US Senate introduced a proposal for the next coronavirus relief package, a $1 trillion plan called the Heals Act.  The proposal sparked immediate opposition, with the Democrats claiming it was too limited.   The dollar fell to a two-year low on Wednesday as pressure built on the Federal Reserve to strike a dovish policy stance amid a surge in coronavirus cases. Against a basket of other currencies, the dollar fell 0.4 percent to 93.41 its lowest level since June 2018.  It has weakened by more than 3 percent since the last Fed meeting as yield on the benchmark US Treasury debt have fallen more than 20 bps since then.  Meanwhile the euro traded $1.1762 up 0.3 percent though it has stepped back from Monday’s high of $1.17815 whilst the dollar traded at 104.82 yen down 0.25 percent on the day.  The weakening dollar also pushed the Australian dollar higher with the currency trading at $0.7185 hitting a 15-month peak after data showed Australia’s consumer prices dropped by a record in quarter two.  On Wednesday after the announcement by the FED, the dollar .DXY fell to a two-year low against a basket of currencies.

Market Wrap

Worries of a resurgence has raised concerns and knocked down sentiment on Monday.  Meanwhile on Tuesday European stocks climbed higher as investors hoped for more US stimulus to support the economy from the economic damage caused by the pandemic.  Investors focused on the latest US Federal Reserve meeting in Washington and Friday’s deadline for US Congress to extend unemployment benefits.   The pan-European STOXX 600 climbed 0.3 percent while German DAX gained 0.5 percent and London’s FTSE 100 was up 0.6 percent.  US Treasury yields increased on Tuesday after declines on Monday as investors showed continued demand for notes at auction and expected a dovish message from the US FED later in the week.  Stocks across Asia also gained on Tuesday as hopes for a dovish message from the FED this week outweighed the concerns about how the Philippines and other regional economies are dealing with renewed outbreak cases.   Wall Street main index opened lower on Tuesday as lawmakers geared up for talks over the coronavirus relief deal, whilst investors also weighed on a mixed batch of earnings reports from blue-chip companies.  The Dow Jones Industrial Average fell 0.21% at the open to 26,529.45, the S&P 500 opened lower by 0.16 % at 3234.27 while the NASDAQ Composite dropped by 0.26% to 10,509.20.  Eurozone government bond yields opened slightly higher on Tuesday but were still near the lows reached in the previous session when US-China frictions moved investors to safe-haven assets.  Germany’s 10-year bond yields had their biggest drop in over a month on Monday as US-China relations deteriorated sharply with markets turning cautious.  Last week the European Central Bank increased its bond purchases, buying a net of 27.183 billion euros of assets as part of its quantitative easing programme, showed data on Monday.   After the Fed’s statement on Wednesday leaving the policy unchanged, US stocks added to the gains while longer-term U.S. Treasury yields moved slightly higher.  The DOW Jones Industrial Average closed higher at 26,539.57 (0.61%), the NASDAQ 100 also closed with 1.24% higher at 10,662.983 and the S&P 500 increased by 1.24 percent to 3258.44.  On Thursday German government bond yields dropped towards two-month lows as investor’s attention turned to inflation and GDP readings in Europe.  With data about the gross domestic product of Germany released on Thursday, Germany’s 10-year bond yield fell to a new 2 ½ month low at -0.53 percent dropping further below the -.50 percent level where it had found support in recent weeks.  Data showed that inflation in German states eased in July.  Meanwhile, Italian 10-year yields fell to their lowest since early March at 1.036% as the country sold five and ten-year bonds via auction.  As US President Donald Trump raised the possibility of delaying November’s presidential election US stock indexes opened lower. 

Oil

Oil prices climbed on Monday amid hopes that stimulus efforts will help revitalise the US economy, however gains were capped by the rising cases of COVID-19 infections and the tensions between Washington and Beijing.   Meanwhile on Tuesday oil prices fell as US lawmakers were due to debate an economic stimulus package and investors were worried about a rise in coronavirus cases worldwide.  Brent crude dropped 0.1 percent at $43.37 while West Texas Intermediate US crude dropped 0.9 percent to $41.24 a barrel.  Brent crude was in deep contango that is a situation when the future price of the commodity is higher than the spot price, encouraging a build-up of inventories.  Oil prices were mixed on Wednesday as the record increases in COVID-19 infections in some US states raised concerns about the fuel demand wiping away gains after a surprise drop in US crude inventories.  Brent crude futures were up by 0.1 percent after dropping 1.4 percent in the previous session.  The American Petroleum Institute showed on Tuesday inventories of crude oil in the US dropped by 6.8 million barrels last week to 531 million barrels. 

Malta:  Unemployment Rate – June 2020

The seasonally adjusted monthly unemployment rate for June 2020 reached 4.2 percent a decrease of 0.1 percentage points from the previous month.  For the same month the seasonally adjusted unemployment rate for males was 3.8 per cent while the rate for females stood at 4.9 percent.  During June 2020 the seasonally adjusted number of unemployed persons was 11,496 with the unemployed males and the 25 to 74 age group being the major contributors to the overall level of unemployment.  The seasonally adjusted number of unemployed youths amounted to 3,577 whereas those aged between 25 and 74 stood at 7,920.   The seasonally adjusted unemployment rate for persons aged 15 to 24 years (youth unemployment rate) was 11.8 percent while the rate for those between 25 and 74 years stood at 3.3 per cent.

Malta:  Industrial Producer Price Indices – June 2020

During June 2020 the industrial producer price index registered a decrease of 0.27 percent when compared to the same month of the previous year.  This occurred due to a decrease of 2.41 percent in intermediate goods, while prices increased by 1.98 percent in consumer goods and 1.19 percent in capital goods.  Meanwhile there was no price change in the energy sector.  During the month of June 2020, the industrial producer price index went down by 0.06 percent over the previous month.  This was due to decreases of 0.14 per cent in capital goods, 0.08 percent in consumer goods and 0.03 percent in intermediate goods.  There were no price changes recorded in the energy sector. 

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

July 31st, 2020


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