“Growth In The Eurozone…”

Source: Reuters

Eurozone manufacturing activity expanded modestly last month.  This is the first growth since early 2019, with factories playing an important part in this potential recovery.  The IHS Markit’s final Manufacturing Purchasing Managers’ Index bounced to 51.8 in July for the eurozone from 47.4 in June, reaching the 50-mark separating growth from contraction since January 2019.   Manufacturers in Germany expanded in July for the first time since December 2018, showed a survey on Monday, indicating that a recovery in the sector remains on track.  IHS Markit’s Final Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 51.0 in July (June: 45.2).  In France manufacturing activity picked up in July although new orders remained stagnant, showed a monthly survey on Monday.    According to IHS Markit, final purchasing managers’ index (PMI) for July rose to 52.4 from 52.3 in June.  Data published in July showed that the French economy contracted by a post-war record of 13.8% in the second quarter, impacted by the lockdowns.   This decline was lower than expected and a rebound in consumer spending offered a glimpse of recovery.  Meanwhile in Britain manufacturing output grew at its fastest pace in nearly three years as factories reopened and demand began to accelerate after easing of the lockdown measures.  

Bank of England Meeting

The Bank of England said on Thursday that it expected the British economy to take longer to reach pre-COVID levels and warned of the possible risks from taking interest rates below zero.  The bank further announced unanimous votes by its policyholders to make no changes to its key interest rate which stands at just 0.1 percent nor its huge bond-buying programme, and said that the economy would not recover its end-2019 size until the end of next year.  Unemployment was expected to peak at 7.5% at the end of the year, which is double the most recent rate but lower than the BOE’s previous estimate of just under 10 %.  Meanwhile GDP is set to rebound by 9 percent next year.   Projections also showed that the BOE’s Monetary Policy Committee thought inflation was likely to go below zero this month before returning to around the BOE’s 2 percent target over the next couple of years.  It further added that, “The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”  The BOE added that it is taking an ongoing review of whether to take rates into negative territory.    It also said, “The MPC will continue to review the appropriateness of a negative policy rate as a policy tool alongside its broader toolkit.”

US – Missed Deadline on Unemployment Payments

Talks are underway in the United States between Democrats in the U.S. Congress and the White House about a new coronavirus relief bill after a deadline was missed on Friday.  The bill is about extending enhanced unemployment payments during the pandemic.  An important point in the discussion was the $600-per week enhanced unemployment benefit, an important factor for the millions of Americans who now find themselves without work. Meanwhile according to a US Senate top Democrat, negotiations started to move in the right direction, however the two sides remain far apart.  On Wednesday, top congressional Democrats and White House officials seem to harden their position on new coronavirus relief as negotiations headed toward an end-of-week deadline however there is no sign of an agreement yet. 

US weekly Jobless Claims

The number of Americans seeking unemployment benefits fell last week, however, remains significantly high.   Initial claims for state unemployment benefits totalled a seasonally adjusted 1.186 million for the week ended 1st August compared to 1.435 million in the prior week, said the Labour Department on Thursday.  The health crisis is affecting demand for goods and services and layoffs in other sectors of the economy that initially were not affected when nonessential businesses like restaurants and bars were shut down in mid-March to slow the pandemic.  Furthermore, businesses are cautious about hiring. 

Asia

Asia’s factory pain continued to ease in July with contraction slowing in big export-reliant nations, raising hopes that the region is steadily emerging from the damage from the coronavirus pandemic.  Manufacturing activity in China expanded at the fastest pace in nearly a decade as domestic demand improved, showed a private sector survey on Monday.  This could help to cushion the economy.  China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 52.8 last month from June’s 51.2, marking the sector’s third consecutive month of growth and the biggest jump since January 2011.  Japan and South Korea saw factory activity shrink at a much slower pace.  This indicates that the pressures on manufacturers were easing.  Taiwan’s manufacturing activity also rose above the 50-mark separating growth from contraction, suggesting that increased demand for work-from-home equipment is underpinning chip sales. Meanwhile, factory activity in the Philippines and Vietnam slid in July.  India’s factory slump also deepened due to renewed lockdown measures to contain the spread of the virus, with an impact on demand and output. 

China and the US Energy Trade Deal

In the first half of 2020, China only bought 5 percent of the targeted $25.3 billion in energy products from the US, falling short of its trade commitments.   China’s imports of crude oil liquefied natural gas (LNG), metallurgical coal and other energy products totalled around $1.29 billion this year through June, according to Reuters calculations based on China customs data. Failure to meet the target could further hamper the US-China relations which have worsened since the outbreak of the coronavirus pandemic.  On Tuesday China said that it would retaliate if the US persisted with “hostile action” against Chinese journalists, who may be forced to leave in the coming days if their US VISAS were not extended. 

Gold and Silver

The price of gold has surged 30 percent this year to an all-time peak around $1,975 an ounce and is one of the best performing assets of 2020.  The rally was driven by the belief that gold will keep its value better than other assets in a global economy effected by the pandemic.  Gold reached an all-time high on Wednesday after reaching the $2,000 level amid a weaker dollar, falling US Treasury yields and the expectations of further stimulus to support the economy.   Meanwhile, silver climbed by more than 2 percent to $26.60 per ounce, the highest since April 2013.  On Friday gold steadied near a record high as the dollar regained ground as a hedge against the escalating tensions between the US and China.  Worries of a worsening pandemic kept gold on track for its longest weekly gain in nearly a decade.  Meanwhile, silver also gave up the earlier gains and was down to $28.75.  During the week it gained nearly 18 percent. 

Oil

After the news on Friday that the US oil output cuts in May were the largest on record, oil prices climbed leading the way for further gains in the month.  Brent crude posted four-month of gains whilst the US crude posted a third as both rose from the low levels reached in April when the world was on lockdown due to the coronavirus pandemic.  According to the US Energy Information Administration in a monthly report said that US Crude oil production plummeted in May, by a record 2 million barrels per days to 10 million bpd.  Monday saw oil prices dropping due to worries on oversupply as OPEC and its allies plan to increase output. Brent oil futures on Tuesday closed at their highest since early March on hopes that the United States is making progress on new stimulus package and ways to curb the spread of coronavirus.  In early trading both Brent and WTI reached their highest since early March.   Despite Tuesday’s increase in oil prices, traders said crude remained under pressure amid concerns of a new wave of COVID-19 bases elsewhere around the world that could hamper a recovery in oil demand just as producers are increasing output.  The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, were boosting output this month by about 1.5 million barrels per day whilst U.S. producers are also planning to restart shut-in production.  Oil prices continued with their rally on Wednesday after a drop in US crude inventories and a weakened dollar.  However, the increasing number of coronavirus infections worried investors about the demand outlook.  Brent crude ended the session up 1.7% at $45.17 a barrel, while West Texas Intermediate oil settled 1.2% higher at $42.19 a barrel.  The Energy Information Administration said US crude inventories fell by 7.4 million barrels last week.  Oil prices were also supported by a weaker dollar, as it makes oil cheaper for holders of foreign currencies. 

Currency Roundup

The US Dollar experienced early gains on Monday amid mounting concerns about a slowing US economic recovery.  The euro traded almost unchanged at $1.1768 coming off a low of $1.1741 touched earlier in the session.  Tuesday saw sterling reaching a five-month high last week against a deepening dollar as concerns over a second wave of virus infections climbed and a central bank policy meeting later in the week capped gains. Sterling registered its biggest monthly rise in more than a decade in July irrespective of Brexit negotiations remaining is elusive.  It reached $1.3085 against the dollar whilst strengthened by 0.12 percent against the European Union’s common currency to 90.09 pence.  Evidence of the gains in sterling emanating from dollar weakness is the performance of the British currency against the euro and Japanese yen.  It is facing headwinds from domestic and global factors.  The dollar rebound failed on Tuesday due to the political debates over the US relief plan and the gloomy outlook.  After a turbulent July the Dollar started August on a firm note as some investors cut their short positions.  The Australian dollar climbed nearly 0.3% after the central bank delivered no surprises by holding policy steady.  On Wednesday sterling edged higher against a weaker dollar as US bond yields sank and the US coronavirus relief package stalled in Congress.  Sterling went back to the pre-pandemic highs and leading towards a five-month peak hit last week versus the dollar.  On Thursday the dollar struggled amid worries that the US economic recovery may lag behind other countries.  Investors awaited upcoming data about the US labour market.  The euro changed hands at $1.1869 after gaining 0.5 percent in the previous trading session extending the rally since the European leaders agreed on a recovery fund on 21 July.  Against the yen the euro held firm trading at 125.5 yen to the EUR after hitting its highest in the previous session of April of last year.  Sterling jumped to a 5-month high after the Bank of England kept interest rates steady and signalled that a move to sub-zero levels was not imminent. 

Market Wrap

Monday was an opportunity for investors to take profits.  The Asian stock market was mixed.  Yields on benchmark German debt rose 1 basis point to -0.527% reaching its lowest level since the end of May at -0.561 percent.   The EU recovery fund and the surge in coronavirus infection cases in the US boosted Investor’s demand for the euro and European bonds over their US counterparts.  On Tuesday European shares dropped after opening higher, amid mixed earnings results. Strong U.S. manufacturing data boosted sentiment through the Asian session despite the gloomy US-China relations.  After Monday’s rally European shares opened higher but then fell, with the pan-European STOXX 600 down 0.6% and London’s FTSE 100 down 0.7%.  The MSCI world equity index that tracks shares in 49 countries was up 0.4% after reaching a five-month high, meanwhile the MSCI’s main European Index was flat on the day.  Italian government bond yields dropped to their lowest since March on Tuesday and the country’s debt was poised for its best session since 20 July.  European assets have become more appealing to investors due to EUR 750 billion recovery fund that has boosted sentiment towards the block.  German 10-year government bond yields were down 2 basis points at -0.54 percent having hit 2 ½ month lows of -0.56 percent last week.  The ECB’s breakdown of its bond purchases, which was released late on Monday, showed that Italy continued to benefit from oversized transactions in June and July under both the ECB’s emergency and conventional bond buying programmes.  Italy is the largest country where the ECB is purchasing more bonds than its share of the capital key, a quota based on how much money each country has paid into the bank.  The data also showed that the ECB now holds 9.95 billion euros of Greek government bonds or 13.5 percent of the outstanding market, according to Reuters calculation.  Stocks slipped on Thursday as investors waited for the US stimulus package agreement.  European stocks also edged down during a volatile session.  Frankfurt gained 0.2 percent as investors considered new corporate earnings reports.  The Euro STOXX 600 fell 0.2 percent after opening, and London lost 1.3 percent on news from the Bank of England.  The MSCI world equity index slipped slightly in the red, doubting the continuance of the four day rally this week. On Thursday US indices closed higher with the Dow Jones Industrial Average rising by 0.68 percent, the NASDAQ 100 by 1.27 percent and the S&P 500 by 0.64% respectively. US President Donald Trump revealed sweeping bans on US transactions with China’s ByteDance, owner of video-sharing app TikTok and Tencent operator of messenger app WeChat, in a major escalation of tensions with Beijing.  The popular Tiktok has come under fire from US lawmakers and the administration over national security concerns about data collection.  The executive orders will go into effect in 45 days.  Meanwhile, world stocks ended four days of rally on Friday amid the increased tensions with China.

Malta:  Index of Industrial Production June 2020

In June 2020 the seasonally adjusted index of industrial production increased by 3.1 percent.  The increase was registered in all main groupings: consumer goods (4.3 percent), capital goods (3.7 percent), intermediate goods (1 percent) and energy (0.1 percent).  In comparison with June 2019, the working-day adjusted index of industrial production decreased by 3.3 percent amid an increase in all main industrial groupings except consumer goods which registered an increase of 4.3 percent.  Meanwhile, production of capital goods, energy and intermediate goods declined by 19.4 percent, 3.8 percent and 0.2 percent respectively.

Antonella Mercieca

Client Relationship Manager

Source:

Reuters, National Statistics Office - Malta (https://nso.gov.mt/)

Date:

August 7th, 2020


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