“Joe Biden’s Inauguration…”

All eyes were on Biden’s inauguration as he was sworn in as the 46th U.S. President on Wednesday. Biden signed 15 executive actions shortly after being sworn on Wednesday, undoing policies that were put in place by Donald Trump.  He also made his first moves on the pandemic and climate change.  The actions signed include a mask mandate on federal property and for federal employees, an order to establish a new White House office coordinating the response to the coronavirus and stopping the process of withdrawing from the World Health Organisation.  Furthermore, Biden signed a document to start the process of re-entering the Paris climate accord and issued an order to tackle climate change.  His administration plans a coordinated federal coronavirus response aimed at restoring trust in the government and focused on boosting vaccines, increasing testing, and reopening of schools.  The new president is putting the disease at the top of the list of challenges including building the economy.      

China’s Economy picks up

China’s economy recovered in the fourth quarter with growth exceeding expectations as it closed 2020 in good shape although impacted by the coronavirus pandemic. According to official data on Monday Gross domestic product grew 2.3% in 2020, being the only major economy in the world avoiding a contraction last year.  China is expected to continue to expand over its peers this year. The strict virus curbs applied by Beijing enables the country to contain the Covid-19 outbreak much faster than most countries. Stimulus plans by the government and local manufacturers stepping up production to supply goods to many countries also contributed to the momentum.  GDP expanded 6.5% year-on-year in the fourth quarter, according to the data from the National Bureau of Statistics following the 4.9% growth in the third quarter. Data last week showed that Chinese exports grew by more than expected in December as the disruptions worldwide amid coronavirus increased the demand for Chinese goods irrespective of a stronger yuan that made exports more expensive for overseas buyers.

US Weekly Jobless Claims

The number of Americans filing new applications for unemployment benefits decreased modestly last week.  Initial claims for state unemployment benefits totalled a seasonally adjusted 900,000 for the week ended 16^th January compared to 926,000 in the prior week said the Labour Department on Thursday.  Part of the increase in claims reflects people re-applying for benefits following the government’s recent renewal of a $300 unemployment supplement until 14^th March as part of the latest pandemic relief.

Bank of Japan 

The Bank of Japan (BOJ) kept its monetary policy steady on Thursday and upgraded its economic forecast for the next fiscal year.  However, it warned of escalating risks to the outlook amid the new coronavirus measures that could threaten a recovery.  As it was widely expected the BOJ maintained its targets under yield curve control (YCC) at -0.1% for short term interest rates and around 0% for the 10-year bond yields. The BOJ upgraded next year’s fiscal year’s growth forecast to a 3.9% expansion from a 3.6% gain seen three months ago amid hopes that the government’s huge spending package will help to soften the damage caused by the pandemic.  It also warned that services spending will remain under “strong downward pressure” due to fresh state of emergency measures taken this month.    

UK Inflation

British inflation increased in December with consumer prices rising 0.6% in annual terms after an 0.3% increase in November, said the Office for National Statistics.  The temporary easing of COVID-19 travel restrictions helped to push up air and sea fares while the increase in oil prices simultaneously increased the price of fuel  and the price of clothing also rose. The ONS said that air and sea fare prices rose last month, making transport services the biggest contributor to higher inflation.   Inflation has remined below the Bank of England’s target of 2% since mid-2019 and the COVID 19 pandemic pushed it close to zero.  It is likely to increase due to the impact of value-added tax cuts and due to Britain’s new less open trading relationship with the European Union.  Economists however see little pressure on the BOE to start raising interest rates from their all-time low any time soon as the UK economy is still about 10% smaller than before the pandemic.

European Central Bank

The European Central Bank kept its policy unchanged on Thursday but reaffirmed a pledge to keep borrowing costs at records lows to help the eurozone economy with the impact from the coronavirus pandemic.  In a press release the ECB said, “in any case the Governing Council will conduct net purchases until it judges that the coronavirus crisis phase is over.

German Investor Morale

Investor sentiment in Germany rose in January amid improved expectations for exports, buoying the outlook for Europe’s largest economy, said on Tuesday the ZEW economic research institute.  ZEW said that the survey of investors’ economic sentiment increased to 61.8 from 55 points the previous month.  Meanwhile a separate gauge of current conditions edged up to -66.4 from -66.5 points the previous month. 

Malta:  Harmonised Index of Consumer Prices (HICP) – December 2020

In December 2020 the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) remained at a constant rate of 0.2%.  The largest upward impact on inflation was measured in the Food and Non-alcoholic Beverages Index, while the largest downward impact was recorded in the Clothing and Footwear Index. 

Market Wrap

European stocks climbed on Monday amid a jump in carmaker Stellantis (jumped 7.6% on their first day of trading on completion of the $52 billion merger between Fiat Chrysler and PSA) and luxury stocks that helped to reverse early market losses due to concerns about an economic recovery and losses in French grocer Carrefour.  Trading was subdued on Monday as the US markets were closed for Martin Luther King Day.  The German DAX rose 0.4% amid a 4.8% increase in Adidas, CAC 40 climbed just 0.1% while UK FTSE 100 slipped 0.2%.  Investors kept an eye on the political developments in Rome as Prime Minister Giuseppe Conte faces two days of parliamentary votes that will decide the future of the coalition.

European shares rose on Tuesday following the Asian markets rally on optimism about the Chinese economy and upbeat earnings reports from Rio Tinto and computer peripherals maker Logitech that boosted sentiment.  British shares also climbed on Tuesday amid a jump in HSBC shares and an encouraging production report from miner Rio Tinto. After two consecutive sessions of decline the blue-chip FTSE 100 was up 0.7%.  Italian government bond yields were lower on Tuesday, ahead of a confidence vote in the upper house Senate.  The expectations of no snap election, the ECB stimulus to fight the damage caused by the coronavirus has limited any selloff of Italian government bonds. On Monday Conte won a confidence vote in the Chamber of Deputies as he clung to power after a junior partner quit the ruling coalition that triggered a political crisis.  Italy’s 10-year government bond yield dropped 0.586%.  The closely watched spread between German and Italian government bond yield was 110.4 basis points higher than the 98-basis point reached a week ago.  Germany’s 10- year government bond yields were up 0.5 basis points at -0.515%.  Japanese shares closed higher on Tuesday after dropping for two consecutive sessions with automakers and semiconductor shares leading the rebound.  The Nikkei 225 Index ended 1.39% higher at 28,633.46.  China shares dropped amid a resurgence of COVID-19 cases that hit market sentiment, in particular, consumer discretionary and materials stocks. 

Wall Street futures rose on Wednesday as investors looked forward to another fiscal boost to support the economy after President Biden takes office later in the day.  Meanwhile, European stocks were in the green after ASML the chip equipment maker and Swiss Luxury group Richemont gave encouraging earnings update.  European markets mirrored an upbeat mood in global markets after US Treasury nominee Janet Yellen called for big fiscal spending by underlining the need to help the economy after being battered by the pandemic.  Luxury stocks gave the biggest boost as well.  Italy’s FTSE MIBB outperformed after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate on Tuesday allowing him to remain in office after a junior partner quit his coalition last week.  Asian shares also climbed record high on Wednesday after the comment by Janet Yellen for the hefty fiscal relief package to support the economy. After Biden took office on Wednesday Wall Street climbed with the DJ industrial average hitting 0.83% reaching 31188.38, NASDAQ 100 rose 2.31% reaching 13296.45 whilst the S&P 500 climbed by 1.39% reaching 3851.85. 

Asian shares reached record highs on Thursday following the fresh record highs on Wall Street overnight and on increased hopes about the incoming Biden Administration to cushion the damage caused by the pandemic.  European stocks rose on Thursday amid hopes of a larger US stimulus under the new president, while investors awaited clues from the European Central Bank about the economy.  Tech stocks jumped 1.5% continuing with their rally for a second straight session. 

Oil

According to International Energy Agency (IEA)on Tuesday, oil demand recovery will take a hit from a spike in new coronavirus cases before the vaccine roll-outs and stimulus measures help in the second half of the year.  Oil rose supported by expectations of higher demand, OPEC curbs and forecasts of a drop in US inventories. Oil prices climbed with US stock markets on Tuesday ahead of Joe Biden’s inauguration on optimism of more government stimulus that could lift global economic growth. Oil prices fell on Thursday after data showed US crude stocks unexpectedly rose last week, raising worries that the pandemic restrictions will cut fuel demand.  US West Texas Intermediate crude futures fell 0.5% to $53.04 a barrel after two days of gains on hopes of higher spending by the Biden administration.

Currency Roundup

On Tuesday sterling slipped against a strengthening euro and gained against a weaker dollar ahead of the confirmation of Janet Yellen hearing as the nominee for Treasury Secretary.  Yellen had served as the head of the US Federal Reserve from 2014 to 2018.  The dollar dropped giving a lift to sterling of 0.2% to $1.3617. Against the euro sterling fell 0.2% to 89.06 pence. 

The US Dollar came under pressure in Asia on Wednesday and the euro found support from improved sentiment in Germany, the ebbing political turmoil in Italy and renewed focus on US pandemic relief spending.  The euro climbed as far as $1.215 having extended the gains made overnight, as it bounced off support around $1.205 after the Italian government survived a confidence vote and ZEW investor sentiment survey beat forecasts. The euro was steady on the pound and held its gains against the yen.  As risk sentiment improved on Tuesday the safe-haven yen was sold.  Sterling rose marginally to $1.3651, drawing support by a prediction of the Bank of England’s chief economist that Britain’s economy would begin to “recover at a rate of knots” in the second half of the year.  China’s yuan gained 0.2% to 6.4683 onshore despite the People’s Bank of China injecting 280 billion yuan into short-term funding markets to offset seasonal cash demands and the surge of money into Hong Kong stocks.  There were no changes to China’s benchmark lending rates as expected. 

On Thursday, the dollar declined versus major peers on optimism about the stimulus package by the new US administration.  Riskier commodity currencies were supported by the Asian stocks which followed the US equities in reaching new levels after the inauguration of Joe Biden.  The Euro continued with its gains on Thursday after the ECB’s monetary policy meeting while the expectations of a massive stimulus package boosted market optimism and weakened the demand for safe-haven currency like the dollar.   

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