“Market Wrap…”

Market Wrap

Global share markets headed for the worst week since the levels reached in the 2008 financial crisis as investors dumped risky assets amid fears that the coronavirus would become pandemic and would set economic growth off track.   Swiss shares tumbled as investors feared the spread of the virus in neighbouring Italy. The Swiss Market Index traded lower by 3.4 percent, which is the biggest one-day loss since August 2016.  On Tuesday European shares ended at their lowest in nearly two months as concerns over the coronavirus heightened.  The benchmark S&P 500 index fell more than 4 percent on Thursday extending a rout that has dropped more than 10 percent off its closing peak on 19 February.  Asian stocks tracked another plunge on the benchmark on Wall Street, while the markets in China, Japan and South Korea also plummeted.    The global threats from the virus prompted investors to increase their expectations that the US FED would need to cut interest rates as soon as next month in order to support the economy.   The MSCI all country world index this week dropped 9.2 percent on course for the biggest weekly decline since a 9.8 percent plunge in November 2008.  On Thursday the CBOE volatility index which is often called “fear Index” jumped 39.16, which is the highest level in about two years.  On the same day the S&P 500 suffered its biggest one-day point loss since August 2011 and the Dow Jones Industrial Average marked its biggest-ever one day point drop as investors moved to safer assets such as Treasury bonds and gold.  The drop in global equities has wiped out more than $3 trillion in value this week.  On Friday morning Chinese stocks fell more than 3 percent.  Japanese shares also plummeted in heavy volume to their lowest in nearly six months as global markets sold off on the rising possibility that the coronavirus will become a pandemic.  Italian government bond yields jumped in early trade on Friday after the number of coronavirus cases in the country continued to rise.  Italian 10-year government bond yields rose 13 bps in early trade to 1.2 percent the highest since 24 January.  The gap between this yield and that of Germany’s 10-year yield (a key measure of risk) climbed to 178 bps, the highest since late August.  10 year Italian bonds are in for their worst week this year rising 30 bps in their biggest weekly jump since end of September.

COVID-19

Countries on three continents reported their first cases of the coronavirus on Friday as the worlds prepares for a pandemic of the disease.  Meanwhile, investors dumped their equity holdings amid a global recession.  Disruptions to international travel and supply chains are fuelling fears of a recession in the US and the Eurozone.  Where the virus has originated late last year in Mainland China, reported 327 new cases, the lowest since 23 January taking the number to more than 78,800 cases with almost 2,800 deaths.  Four more countries reported first cases taking the number of countries and territories outside China with infections to 55, with about 37,000 cases killing about 70 people.  Meanwhile, countries other than China are accounting for about three-quarters of new infections.  Tedros Adhanom, Director General of the World Health Organisation, said that all nations should prepare.  Whilst in France the number of reported cases doubled, Germany warned of an impending epidemic and Greece, which is a gateway from the Middle East, announced more stringent border controls.  In Italy which is the most hit, the death toll rose to 17 and the number of people who tested positive for the illness increased by more than 200 to 655.    On Thursday he said, “The virus has pandemic potential,”.  “This is not a time to fear. This is a time for taking action to prevent infection and save lives now.”

Currency Round Up

On Monday the euro dropped towards $1.08 and the Australian dollar dropped to its 11-year low as the coronavirus spread outside China and rose fears of a pandemic.  Investors moved to the dollar as the currency is the best choice for investors because the US economy is considered as better sheltered if the virus hits global growth.  Meanwhile, the euro weakened to 0.3 percent to $1.0805 close to last week’s $1.0778 and the dollar gained 0.2 percent against a basket of currencies, close to the 99.915 level hit last week for its strongest since April 2017.  The safe-haven Japanese yen and the Swiss franc gained but not by much.  The latter climbed to its highest since July 2015 against a struggling euro.  The franc whose demand increases in times of uncertainty climbed to 1.0604 versus the euro a 41 /2 year peak and a higher value than it reached after Britain’s vote to the leave the EU.  Sterling fell on Monday on rising fears from the virus and investors moved to US dollars. The pound fell on Thursday hitting more than five-week low versus the euro, as Britain confirmed a hardline stance on trade talks with the EU.  There was further disappointment that the new finance minister may not increase spending as much as expected.  On Thursday, Britain said that it wanted binding obligations on access to London, the EU’s biggest financial centre, as it risks being locked out of its biggest market for services such as banking, insurance and asset management.  Senior Minister Michael Gove told parliament on Thursday that the UK would not “trade away its sovereignty” in pursuit of a trade deal with the EU.   The yuan eased on Friday as it was dragged by a massive global selloff in risk assets.  Meanwhile, growing expectations of a US rate cut slowed the Chinese currency’s fall against the dollar.  Broader dollar losses driven by increasing expectations that the FED could cut interest rates as early as next month helped to slow the Chinese currency’s decline on Friday.  The Australian dollar and the New Zealand dollars were heading for another week of losses on Friday as fears of the health of the global economy increased the bets of aggressive rate cuts and drove local bond yields to an all-time lows.  The Aussie also took a beating on the euro, as it jumped to a seven-month peaks at A$ 1.6763 after the head of the European Central Bank played down the prospect of an immediate easing in monetary policy.

Germany’s Economy

According to the Governor of the Bundesbank, President Jens Weidmann,  “All in all, economic growth this year could come in slightly lower than our experts estimated in December.”   He further said that the German economy could miss already lowered growth forecasts this year as the coronavirus epidemic hits demand as well as supply in China while also spreading abroad.  The Bundesbank halved its real GDP growth prediction for 2020 in December to 0.6 percent.

Britain

Bank of England Governor Mark Carney said that Britain should prepare for an economic hit as fallout from the novel coronavirus outbreak deepens.  Carney told Sky news that the central bank had already detected a tightening in supply chains that could imply a downgrade, but it was too early to tell how badly Britain would be affected.  Carney further added in the Sky News interview that the BOE was constantly monitoring UK banks to ensure they remain in good health so there is no risk of a financial crisis.  On Thursday, the British region of Northern Ireland confirmed its first case of coronavirus, with the number of cases in the UK hit by the virus reached16.

Oil

Oil prices dropped by 4 percent on Monday as the rapid spread of the coronavirus in countries outside of China added concerns over the impact of demand for crude.  Thursday saw oil prices tumbling for a fifth day to their lowest level in more than a year.   Trading in oil markets suggested investors expect a prolonged period of oversupply, while demand is negatively affected from the virus as it spread to large economies including South Korea, Japan and Italy.

Malta:  Gross Domestic Product 2019

Provisional estimates indicate that the Gross Domestic Product (GDP) for 2019 amounted to EUR 13,208.50 million registering an increase of EUR 842.2 million or 6.8 percent when compared to 2018.  In volume terms, GDP went up by 4.4 percent.  When compared to 2018, the EUR 842.2 million increase in GDP at current prices is estimated to have been distributed into a EUR 379.9 million increase in compensation of employees, a EUR 444.1 million increase in gross operating surplus and mixed income and a EUR 18.3 million increase in net taxation on production and imports.

Malta:  Retail Price Index – January 2020

In January 2020, the annual rate of inflation as measured by the Retail Price Index (RPI) was 1.34 percent up, up from 1.18 percent in December 2019.  The largest impact on inflation was the Food Index.  The Retail Price Index measures the monthly prices changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked with the COLA (Cost-of-living adjustment) increases and periodic rent payment adjustments.

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