“Mario Draghi…”

A little over a year after leaving the presidency of the European Central Bank, Mario Draghi was asked by the Italian head of state on Wednesday to resolve the political chaos in Rome and form the country’s 67th post-war government. Mattarella’s move came after talks aimed at salvaging Prime Minister Giuseppe Conte’s shattered coalition leaving him with two options:  early elections or else a technocrat government to overcome the challenges that Italy is facing.  After leaving Italy to become vice-president of Goldman Sachs in London from 2002-5, he was called back to Rome to revive the fortunes of Italy’s central bank as its governor Antonio Fazio had been forced out by a corruption scandal.  Whilst at the Bank of Italy Draghi’s international standing and open, outward looking approach paved the way for his ascent to the presidency of the ECB from 2011 to 2019.  In 2012 after his pledge to save the euro amid the currency bloc’s sovereign debt crisis, Draghi became one of Europe’s recognised and powerful figures. 

Italy’s Economy

Italy’s economy shrank by 2% in the fourth quarter of last year from the previous three months, preliminary data showed on Tuesday.  The National Statistics Bureau ISTAT said, on a year on year basis, fourth quarter gross domestic product in the eurozone’s third largest economy was down 6.6%.  Lockdowns aimed at curbing the coronavirus pandemic have damaged the economy and data released on Tuesday shows that Italy’s gross domestic product shrank by 8.8% in 2020 its sharpest drop since World War Two.  The Italian economy plunged in the first half of last year due to government lockdowns to try to rein in the coronavirus.   It rebounded by 16% in the third quarter amid the ease in restrictions before shrinking again at the end of the year as the pandemic gathered strength.  ISTAT said that in the fourth quarter domestic demand and trade flows both contributed negatively to GDP.  It did not give numerical breakdowns of components with its preliminary estimate, but said industry, services and agriculture had all declined. 


IHS Markit’s final January Composite Purchasing Managers’ Index (PMI) seen as a good guide to economic growth fell to 47.8 from December’s 49.1.  Anything below 50 indicates a contraction.  A PMI covering the service industry fell to 45.4 from December’s 46.4.  A manufacturing PMI on Monday showed factory growth remained robust at the beginning of the year but the pace declined. The bloc’s economy contracted 0.7% last quarter official data showed on Tuesday.  As venues were closed the demand for services dropped.  

US Service Sector Activity

US services industry activity increased to its highest level in nearly two years in January, with growth in new orders and employment accelerating.  The Institute for Supply Management (ISM) said on Wednesday that its non-manufacturing activity index increased to a reading of 58.7 last month.  This was the highest reading since February 2019 and followed 57.7 in December.  The index is now about its pre-pandemic level.  A reading above 50 indicates growth in the services sector.  The latter accounts for more than two-thirds of US economic activity.  The pandemic has shifted spending from services to goods and the former s lowered by about 7.5% than before the outbreak of the virus in the US.   

US Weekly Jobless Claims

The number of Americans filing new applications for unemployment benefits decreased last week.  This suggests that the labour market was stabilising as the authorities started to loosen pandemic-related restrictions on businesses.  The initial claims for state unemployment benefits totalled a seasonally adjusted 779,000 for the week ended 30 January compared to 812,000 in the prior week, said the Labour Department on Thursday.  Jobless claims remain at about the 665,000 level during the 2007-2009 Great Recession however well below a record 6.867 million in last March when the pandemic hit the US.

Bank of England

According to the Bank of England on Thursday, banks in Britain would need at least six months to prepare for any interest rate cut below zero, as it kept its stimulus programmes on hold ahead of what it hopes will be an economic recovery later this year.  It further said that it would ask banks to get ready for the possibility of negative rates.  Governor Andrew Bailey said that “nobody should take any signal from this.” He further added, “my message to the markets is you really should not try to read the future behaviour of the MPC from these decisions and these actions we’re taking on the toolbox.” Central bank said that Britain’s economy would probably shrink by 4% in the first three months of 2021 but it was expected to recover rapidly towards pre-COVID levels over the year.  

Market Update

European shares climbed on Monday bouncing from their worst weekly decline since October powered by a rise in shares of miners after a retail frenzy shifted its attention to silver.  Data on Monday showed that the ECB kept its purchases of Italian government bonds steady in the last two months, even as the country went through a political crisis that briefly pushed up its borrowing costs. 

The upbeat mood from the Asian markets spilt over to Europe in early trading on hopes of more US stimulus for the US economy.  Investors were awaiting negotiations on Tuesday between US President Joe Biden and Republican senators re the new COVID-19 support bill.  European shares rose on Tuesday as investors were hopeful of a faster economic recovery while technology shares gained after the French IT consulting group Atos ended talks of a potential takeover of US rival DXC Technology.  Whilst the European technology sector rose 1.3% the STOXX 600 index gained 1.2%.  All of Europe’s major sector indexes were in positive territory in the first hour of trading.  Core Eurozone government bond yields rose in early trading on Tuesday due to global market sentiment that remained upbeat about US fiscal stimulus.  The spread between the German benchmark yield and the 10-year US Treasury yield was at 159 basis points.  Riskier Italian bonds yields edged higher, with the 10-year up around 1 basis point at 0.636%. 

Italy’s 10-year bond yield dropped sharply in early trade on Wednesday touching the lowest level in almost two weeks.  The gap between Italian and German 10-year bond yields narrowed to 104 bps from 113 bps late on Tuesday.  European shares rose the third session as focus remained on earnings with positive sentiment spilling over from Asian markets on hopes of a faster global economic recovery.    Germany’s DAX index gained 0.8% while the STOXX 600 index climbed 0.9%.  All the major European indexes were in positive territory in early trading.  British shares rose for a third straight session on Wednesday as investors hoped for a faster economic revival due to favourable earnings updates and faster vaccine rollouts. Markets in Asia and the US rose amid renewed hopes for US President Joe Biden’s proposal of $1.9 trillion COVID-19 aid bill and the acceleration in vaccine roll-out programmes.

British shares climbed on Thursday amid positive earnings that boosted the hopes of an economic recovery.  The export oriented and commodity stocks-heavy FTSE 100 has rebounded from early 2021 losses to trade 1.3% higher for the year.  European shares continued with the fourth straight day rally as investor were hopeful of a swifter recovery.  German shares led the advance.  Germany’s ruling coalition parties on Wednesday agreed on additional measures to suppose those hit badly by the COVID-19 pandemic.    

Currency Roundup

On Tuesday the euro struggled at seven-week lows against the US Dollar amid concerns about extended lockdowns that reduced the good sentiment towards the single currency.  Against the dollar, the euro was trading at $1.2078 and has weakened more than 2% from an early January peak of near $1.235.  Many see the rebound of the dollar since early last month as a correction after its relentless decline.    

On Wednesday the dollar traded near a two-month high versus the euro as investors looked to the difference in the strength of the US and Europe’s pandemic recoveries.  The dollar was little changed at $1.2038 per euro in the Asian trading after strengthening to $1.20115 overnight since 1 December. Against the yen the dollar was little changed at 105.025 yen after gaining to 105.17 overnight for the first time since 12 November.  The dollar’s advances come despite an increase in equities amid improving risk sentiment that defies the currency’s historic inverse relationship with stocks. 

Sterling dropped to its weakest in two and a half weeks against the dollar on Thursday before the Bank of England’s meeting amid cautiousness about the possibility of negative rates.  Sterling dropped half a percent against the dollar dropping below the $1.36 mark to $1.3575, its lowest in two and half weeks. It lost 0.1% against the euro, trading within ranges of around 88 pence.  The pound is benefiting from the optimism over the speedy economic recovery amid the lead by the UK over other countries in COVID-19 vaccinations. 


On Monday Spot silver jumped 7.3% to hit is highest since February 2013 at $30.03 as the small-time investors shifted into the market after calls on REDDIT and other platforms.  On Tuesday silver dropped more than 5% retreating from near eight-year peak in the previous session as a margin hike by the CME (Chicago Mercantile Exchange) called a stop to the latest media-driven frenzy on social media.  Raising the margins that investors must post to trade is a step taken by the CME when it aims to smoothen unusual market stress and volatility.  The move follows similar moves to cap the market action taken by the easy access online platforms who were the main attributes for the recent surge in videogame retailer GameStop and other US stocks. 


Oil price settled more than 2% higher on Monday, amid falling US crude inventories and rising winter fuel demand due to one of the worst snowstorms to hit the US Northeast in years.  Oil prices climbed more than 2% on Tuesday reaching its highest in nearly 12 months after major producers showed they were keeping oil output in line with their commitments.  Brent crude was up 2.3% at $57.66 a barrel for its third straight day of gains and the highest levels since February last year.  Whilst OPEC crude production rose for a seventh month in January, even though the increase was smaller than expected, voluntary cuts of 1 million bpd by Saudi Arabia, are set to be implemented from the beginning of February through March.  At a meeting on Wednesday OPEC+ maintained its oil output policy indicating that producers are happy that the deep supply cuts are actually reducing inventories.  Global benchmark Brent extended the gains after the meeting and reached $59 a barrel, its highest since late February 2020.  The OPEC+ shall next meet on 3 March. 

Malta:  Industrial Producer Price Indices – December 2020

In a press release dated 29 January 2021 the National Statistics Office shows that during the month of December, 2020 the industrial producer price index registered a decrease of 0.12% when compared to the same month of the previous year.  During December 2020, the industrial producer price index increased by 0.16% over the previous month.  Intermediate goods went up by 0.68% while consumer goods and capital goods dropped by 0.3% and 0.22% respectively.   No price changes occurred in the energy sector. 

Malta:  Registered Employment – August to September 2020

In a press release dated 2nd February 2021 the National Statistics Office shows that administrative data provided by Jobsplus show that over a period of one year, the labour supply (excluding part-timers) in September 2020 increased by 5.4% reaching 234,964.  Such an increase was attributed to a year-on-year increase in the full-time registered employment (10,218) and an increase in registered unemployment (1,717).  Comparing September 2020 to September 2019, the highest increase in employment was brought about by Administrative and support service activities, human health, and social work activities.  Registered employment in the private sector went up by 8,813 persons to 181,653 whilst public sector full-time employment increased by 1,405 persons to 49,926.   

Antonella Mercieca

Client Relationship Manager


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


February 5th, 2021

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