“Jerome Powell nominated as FED Reserve Chair…”

US President Joe Biden on Monday nominated Federal Reserve Chair Jerome Powell for a second four year term.  Lael Brainard, the Federal Reserve board member who was the top candidate for the job will be vice chair, said the White House.  Powell’s second term would begin in early February and the coming months are important to determine whether his legacy will be one of elevating employment or one where he let inflation surge. U.S. stocks hit record highs after the news. Treasury bond yields also rose and the dollar strengthened.  The news reinforced markets expectations of rate rises next year when the central bank finishes tapering its emergency bond buying programme.

Eurozone Business Growth

Eurozone business growth unexpectedly accelerated this month and another wave of coronavirus infections, new restrictions and price increase pressures are likely to lower December’s expansion, showed a survey on Tuesday.  IHS Markit’s Flash Composite Purchasing Managers’ Index, which is a good indicator of the overall economic health, jumped to 55.8 in November from 54.2 in October.  Anything above 50 indicates growth.  Growth in Germany’s private sector accelerated slightly however the persistent supply bottlenecks in manufacturing continued to weigh on factory output and pushed up inflationary pressures to unprecedented highs, showed earlier data.  French business activity also expanded faster than expected, as the services sector of the eurozone’s second-biggest economy saw its quickest growth in almost four years. 

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits fell to their lowest level since 1969 last week, indicating sustained strength in the economy.  Initial claims for state unemployment benefits tumbled 71,000 to a seasonally adjusted 199,000 for the week ended 20 November, said the Labour Department on Wednesday.  Claims have been dropping since October, although the pace has slowed in recent weeks as applications approach the pre-pandemic average of about 220,000.  Growth in employment has averaged 582,000 jobs per month this year.  There were 10.4 million job openings as of the end of September.  The drop in claims is in line with data on retail sales and manufacturing production that has suggested the economy was regaining momentum in the fourth quarter after having been hit in the July-September period. A separate report from the Commerce Department on Wednesday confirmed the sharp slowdown in the third quarter.  Gross domestic product increased at a 2.1% annualised rate, the government said in its second estimate of GDP growth for the period.  Consumer spending seems to have regained speed in October, with retail sales surging last month as Americans started their shopping early to avoid shortages and paying higher prices for scarce goods. 

FED Minutes

Minutes from the US FED’s last policy meeting showed that a growing number of FED Reserve policymakers indicate that they would be open to speeding up the elimination of their bond-buying program if high inflation continued and would move faster to raising interest rates.  The FED Minutes show that “Various participants noted that the (policy-setting) Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives.”  Fed policymakers unanimously decided at last month’s meeting to begin reducing the central bank’s $120 billion in monthly purchases of Treasuries and mortgage-backed securities, a program introduced in early 2020 to support the economy through the COVID-19 pandemic.  The minutes also showed that a number favoured the faster tapering of the bond-buying program.  The original pace will see the asset purchases tapered completely by next June.  Meanwhile there were increasing calls by policymakers to accelerate the process amid continued high inflation readings and stronger job gains.  Investors’ reaction to the release of the minutes was mainly muted.  Yields on the shorter dated Treasuries which are the most sensitive to the FED policy expectations held steady at slightly higher levels.  The dollar also remained near its highest mark since July 2020 against a basket of major trading currencies.  

Japan’s Factory Activity

Japan’s factory activity grew at the fastest pace in nearly four years in November, as output accelerated on the easing of COVID-19 restrictions.  Activity in the services sector also accelerated, expanding at the fastest pace in more than two years as economic conditions stabilised after a sharp drop in COVID-19 cases and deaths thanks to the roll-out in vaccinations.  The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 54.2, its fastest pace of expansion since January 2018.  The reading, which was lifted by a pickup in overall output and new orders, compared to a final 53.2 in the previous month. The au Jibun Bank Flash Services PMI Index improved to a seasonally adjusted 52.1 from the previous month’s final of 50.7, putting it more firmly into expansion territory.  The reading marked the fastest pace of growth since September 2019, which was just before a sales tax hike hit consumer confidence. The au Jibun Bank Flash Japan Composite PMI, which is calculated by using both manufacturing and services, rose to 52.5 from October’s final of 50.7.

German Business Activity

Growth in Germany’s private sector accelerated slightly in November however, persistent supply bottlenecks in manufacturing continued to weigh on factory output and pushed up inflationary pressures to unprecedented highs, showed a survey on Tuesday.  IHS Markit’s flash Germany composite purchasing managers’ index rose to 52.8, a two-month high from 52 in October.  A reading above 50 marks growth in activity.  Export orders in Germany showed a more resilient trend, however, overall new work increased at the weakest rate since February.  Meanwhile, the flash PMI for manufacturing edged down to 57.6 from 57.8 in the previous month.  The services sector showed signs of better growth prospects despite a recent surge in COVID-19 infections with the services PMI activity rising to 53.4.  The survey further showed, that material shortages and supply chain issues, together with higher energy and wage bills, led to an unprecedented rate of cost of inflation which in turn resulted into many firms to raise their own charges to a record degree.  On Monday the German central bank said that the economy could stagnate in the final quarter of this year amid lack of goods and labour as well as new restrictions to fight the coronavirus pandemic and could put an end to its recent recovery. 

German Household Spending

German household spending was the main driver of a weaker than expected expansion in the third quarter, showed data on Thursday.  Gross domestic product in Europe’s largest economy grew by 1.7% quarter on quarter in adjusted terms from July to September, said the Federal Statistics Office.  Data showed a slowdown in German growth from an upward expansion of 2% from April to June.  A 6.2% jump in consumer spending in July-September from the prior three months contributed 3% to the overall growth rate in the third quarter.  State spending also dropped on the quarter, further pushing down the headline GDP figure.  The resurgence of coronavirus infections over the past weeks is threatening to what could be the remaining pillar of growth in the final quarter. 

Currency Roundup

Dollar

The dollar index held near 16-month highs on Tuesday after the Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that US interest rates will rise in 2022. Currency markets have been mainly driven in recent months by market perceptions of the different pace at which global central banks reduce the pandemic-era stimulus and raise rates.

Euro

The euro traded at $1.136 around a 16-month low, having lost 2.8% so far this month.  The common currency has been hurt by the dovish tone from the European Central Bank and more recently the resurgence in COVID-19 cases in Europe, that has forced Austria back into a full lockdown on Monday and caused Germany to consider tighter restrictions. On Tuesday the euro was up 0.1% against the dollar at $1.12455, recovering slightly after the 16-month low versus the dollar. Meanwhile higher than expected eurozone PMI data helped to push the euro slightly higher on the day. 

Sterling

On Tuesday the sterling was soft against the dollar with the pound at $1.34. Wednesday saw the currency little changed.  Investors remained focused on whether or not the Bank of England will raise interest rates at its December meeting and wondered about the implications of the resurgence in COVID-19 cases across the continent.  Against the euro, sterling was down 0.1% at 84.13 after hitting its highest since February 2020 on Monday at 83.8 pence.   Sterling hit a fresh 11-monthlow against the dollar on Wednesday as expectations for a rate hike supported by the greenback, while it was slightly higher against the euro.  During the day sterling dropped 0.4% versus the dollar, after hitting its lowest level since 22 December 2020 at $1.3324 and the renomination of the Jerome Powell as Fed Chair strengthened the expectations of a US rate hike next year. 

Turkish Lira

Turkey’s lira tumbled on Wednesday toward a record low, amid soaring inflation and other economic fallout, after a 15% crash a day earlier that was led by the President Tayyip Erdogan’s defence of recent rate cuts. On Tuesday the currency touched an all time low of 13.45 against the dollar.  The lira weakened as far as 13.15 against the dollar before moving back to 13.05.  Tuesday’s slide was the lira’s largest since the height of a currency crisis in 2018 that led to a sharp recession. 

Market Wrap

On Monday European stocks ended lower with the CAC 40 closing lower by 0.10% at 7,105 and the DAX also closing lower by 0.27% at 16,115.69.  The FTSE 100 closed at 7,255.46 higher by 0.44%.  In the US, the Dow Jones Industrial Average closed higher at 35,619.25 by 0.05%, the NASDAQ 100 dropped by 1.16% to close at 16,380.98 whilst the S&P 500 dropped by 0.32% to close at 4,682.94. The UK FTSE 100 rebounded to end higher on Tuesday amid gains in mining and energy shares.  Investor sentiment was however in check as the German DAX and the French CAC 40 were down on concerns about fresh restrictions amid the resurgence of the COVID-19 cases.  The FTSE 100 has advanced 11.6% so far this year, aided by robust corporate earnings and record low interest rates.  It however, continues to underperform its European peers as issues of supply chain and worries over inflation weigh on businesses. European shares rebounded on Wednesday after four days of losses as higher commodity prices helped offset fears about the COVID-19 situation in Europe and the prospect of severe restrictions.  The pan-European STOXX 600 index climbed 0.4% after recording its worst session in nearly two months on Tuesday.  Oil stocks rose 1.2% set for their biggest jump in over a month, with crude prices moving higher as investors remained sceptical about the effectiveness of a US led release of oil from strategic reserves.  Miners gained 0.8% tracking higher copper prices on easing concerns over Chinese demand.  Meanwhile travel stocks dropped by 1% on the prospect of stringent travel curbs. The CAC 40 closed lower by 0.03% at 7,042.23, with the DAX also closing lower by 0.37% to 15,878.39 and the FTSE 100 closed higher by 0.27% to reach 7,286.32.  Meanwhile, in the US the Dow Jones Industrial Average closed lower by 0.03% to 35,804.38, the NASDAQ closed higher by 0.37% to close 16,367.81 and the S&P 500 closed higher by 0.23% to reach 4,701.46.  Asian tech stocks rose on Thursday, following their US listed peers, despite gains were capped by the strength of the US Dollars as investors bet on faster raising of interest rates in the US than other major economies. Meanwhile, emerging market shares in Asia dropped on Thursday as investors turned wary of riskier assets after a hawkish tilt from US Federal Reserve policymakers.   European stocks were expected to advance as the Euro Stoxx 50 futures rose 0.5% and the FTSE Futures increased by 0.24% in early trade signalling a rebound after a week when rising COVID cases in Europe have weighed on market sentiment. 

Gold

Gold prices held close to a more than two-week low on Tuesday as the dollar jumped amid bets of quicker interest rate increases after US President Joe Biden backed Federal Reserve Chair Jerome Powel for a second term.  Spot gold was little changed at $1805.96 per ounce after dropping since 5 November on Monday.  US gold futures were steady at $1,805.50.  On Thursday gold prices edged higher as the dollar eased.  However, hawkish comments by the US Federal Reserve policymakers dented the metal’s appeal and kept it well below the $1,800 mark.  Spot gold rose 0.3% to $1,792.93 per ounce after dropping to its lowest since 4 November on Wednesday.  US gold futures added 0.5% to $1,793.80.  From last week’s five month high, gold has slumped 4.5%. 

Oil

Oil prices traded near $80 a barrel on Tuesday after the US announced plans to release up to 50 million barrels of oil from its reserves to cool the market.  The combination of a loan and a sale from the reserves was made in line with other releases from strategic reserves by China, India, South Korea, Japan, and Great Britain, said the White House.  Brent crude futures were down 0.15% at $79.58 a barrel after earlier dropping to $78.55.  US West Texas Intermediate crude futures were down 0.65% at $76.25.  According to the Biden administration the release of 50 million barrels from the US Strategic Petroleum Reserves (SPR) will start hitting the market in mid to late December.  Meanwhile India also announced the release of 5 million barrels of oil from its strategic reserves. On Wednesday oil prices were mainly steady with the Brent crude settling lower by 0.07% at $82.25 a barrel, while the US West Texas Intermediate crude futures were down by 0.14% at $78.39.   

Malta:  Registered Unemployment – October, 2021

A press release dated 22 November, 2021 shows that data provided by Jobsplus for October, 2021 indicate a year-on-year decrease of 1,860 compared to the same month in 2020.  Registered unemployment levels decreased across all age groups for both males and females.  The largest share of males and females on the unemployment register sought occupations as Clerical support workers, with 20.7% and 45.9% respectively.

Malta: Retail Price Index – October 2021

In a press release dated 23^rd November, 2021 in October, the annual rate of inflation as measured by the RPI was 2.31% up from the 2.25% in September, 2021.  The largest upward impact on annual inflation was measured in the Food Index (0.73%).

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