“Plunge In Oil Prices…”

Plunge In Oil Prices

Oil prices have been supported by the political crisis in Venezuela, the stricter US sanctions against Iran and the production cuts from OPEC.  Thursday saw oil prices however plunging with US crude dropping almost 3 percent amid fears of oversupply as increased US sanctions on Iran had  less of an immediate impact than expected whilst US crude oil inventories rose sharply.  US crude fell down 2.8 percent to $61.81 a barrel heading to its biggest weekly fall since February.  The sanctions by the US on Iran intensified this week as the Trump administration halted waivers allowing eight countries, amongst them China and Turkey to continue to do business with Iran.  The roll back did not immediately lead to a supply shortage.  China has complained to the US about its Iran sanctions and Turkey said it was unable to replace Iranian imports easily, calling on Washington to review its move.   Meanwhile, any bullish sentiment has also been eroded as US crude stockpiles signalled that the market was well oversupplied.  US crude stockpiles last week rose to their highest since September 2017, increasing by 9.9 million barrels to 470.6 million barrels as production hit a record of 12.3 million barrels per day, government data showed.  Meanwhile, although many OPEC countries desire to continue with the supply cuts, the group may eventually be forced into action to meet demand in a market that has seen prices climb more than 30 percent this year.  Russia has indicated potentially increasing output.  In April, the country’s oil output fell month-on-month, however stayed above OPEC quotes.

US Federal Reserve Meeting

The US Federal Reserve on Wednesday held interest rates steady and there were no signs that it will adjust them any time soon.  According to Fed policymakers, the ongoing economic growth, a strong labour market and an eventual rise in inflation were still “the most likely outcomes”, as the US expansion nears its 10-year mark.  After President Donald Trump called on the Fed to cut rates by a full percentage point and take other steps to stimulate the economy, the Fed said in a policy statement that, “the labour market remains strong… economic activity rose at a solid rate” in recent weeks.  Subsequent to the Fed’s policy statement and Powell’s insistence that the Fed saw no reason to consider the rate cut in response to weak inflation, there was a modest selloff in stock markets which pushed the bond yields higher.  The S&P 500 index fell 0.75 percent, its largest daily decline since mid-March.  The FED trimmed the amount of interest it pays banks on excess reserves to 2.35 percent from 2.40 percent, in an effort to ensure its key overnight lending rate remains within the current target band.  A main concern flagged in the policy statement was the currently “muted” level of inflation, which continues to fall short of the Fed’s 2 percent target.  The statement suggested a recent decline in inflation may be more persistent than expected with the falling energy prices no longer to be blamed.  Powell said that the drop in inflation this year may be due to transitory factors and that economic and job growth has been stronger than the committee expected.

United States:  First Quarter Productivity

Worker productivity in the US increased at its fastest pace in more than four years in the first quarter, depressing labour costs and suggesting inflation could remain benign for a while.  On Thursday the Labour Department said that nonfarm productivity which measures hourly output per worker, increased at a 3.6 percent annualised rate in the last quarter.  This was the strongest pace since the third quarter of 2014.  The factor contributing to the acceleration in productivity was the surge in the growth of gross domestic product in the January-March period.  The economy grew at a 3.2 percent rate in the first three months of the year after expanding at a 2.2 percent pace in the fourth quarter.  The trend in productivity is improving.  When compared to the first quarter of 2018, productivity increased at a rate of 2.4 percent, which is the best performance since the third quarter of 2010.

US Weekly Jobless Claims

The number of Americans filing applications for unemployment benefits was unchanged from the higher levels last week, but the trend remained consistent with tightening labour market conditions.  Initial claims for state unemployment benefits were flat at a seasonally adjusted 230,000 for the week ended 27th April, according to the Labour Department on Thursday.  Claims surged 37,000 in the prior week, which was the largest rise since September 2017.

Bank Of England Meeting

The Bank of England kept the interest rates on hold on Thursday due to Brexit uncertainty.  The BOE said that there was little immediate risk from waiting for a clearer view of what Brexit would mean for the economy and the nine rate setters all voted to keep its benchmark rate at 0.75 percent.  The BOE has raised interest rates only twice.  Mark Carney made clear his view that investors were too relaxed about the pace at which the BOE could resume its gradual rate increases to ease Britain off the stimulus of low borrowing costs that has been in place for more than a decade.  The BOE upgraded its forecast for growth in the world’s fifth-largest economy to 1.5 percent up from  the decade low of 1.2 percent it predicted in February, reflecting better global economic prospects.  The BOE said that during the first quarter of 2019 the economy probably grew by 0.5 percent due to businesses building up stocks ahead of Brexit, a faster rate than the 0.2 percent growth it forecast in February.  The central bank is expecting growth to slow to 0.2 percent during the current quarter.  British inflation is currently just below its 2 percent target, but unemployment is at its lowest in more than 40 years while wages are rising at their fastest rate in a decade.

Election In Spain

In Sunday’s national election, the leftist political bloc in Spain, held the advantage over its rightist rivals.  The socialists of Prime Minister Pedro Sanchez led with 123 seats in the 350 seat parliament with the far-left Unidas Podemas on 42 leaving the two parties combined 11 seats short of a majority.  The right wing mainstream conservative Popular Party was pegged at just 65 seats, with center-right on 57 and far-right on 24.  While Sanchez’s center-left party did not win a parliamentary majority, it increased its seats in parliament by almost 50 percent and beat back the traditional conservative Popular Party (PP).

France And Spain’s Growth

Economic growth held pace in France whilst in Spain it accelerated to the fastest pace since 2017, easing pressure on the European Central bank to ramp up stimulus for the euro region. The region has struggled with the downturn in trade and a slump in manufacturing that has pushed confidence down to the lowest level since 2016 already means that Germany will trail France this year.  French consumer spending boosted by French President Emmanual Macron’s tax cuts, buoyed the French economy enough in the first quarter to repeat its 0.3 percent growth at the end of 2018.  Spanish expansion picked up to 0.7 percent.  After the data the euro strengthened and traded at $1.1189.  Other data out on Tuesday showed Austria’s economy matched that of France, holding pace with an expansion of 0.3 percent in the first quarter, while Lithuania’s grew by 1 percent.

Global Factory Activity

Global factory activity recovered a little last month but still appeared to be in a period of stagnation amid weak demand and concerns over trade protectionism.  Stimulus measures are as yet to fully kick in.  Business survey data from the eurozone on Thursday pointed to a third straight month of contraction.  Meanwhile, while manufacturing is still growing in the US, it missed expectations by a wide margin on Wednesday.  The same gloomy picture was the situation across much of Asia.  Purchasing Managers’ Indexes showed manufacturing activity shrank again in the eurozone, and the boost to British factories from record rates of pre-Brexit stockpiling slowed in April.  Uncertainty over Brexit had prompted factories to load up on parts and materials at the fastest rate in the 27 year history of PMI surveys.  Manufacturing activity in Germany shrank for a fourth month running and in Italy it contracted for a seventh month.  It accelerated in Spain but only stabilized in France.   In China, both official and private factory surveys suggested an unexpected loss of momentum last month, though overall activity still expanded, although at a more subdued rate.  Activity also contracted in Malaysia and Taiwan and slowed in the Philippines and Indonesia. Meanwhile, India expanded at its slowest pace in eight months.

Trade Talks Between The US And China

According to US Treasury Secretary Steven Mnuchin the China and the US completed productive talks on Wednesday and were nearing a deal that would roll back a portion of the $250 billion in US tariffs on Chinese goods.

Yields

Italian bond yields were set for their biggest weekly fall in six weeks on Friday whilst Spanish yields hovered close to their lowest levels since late 2016, indicating an increase in the apatite for European bond markets.   Whilst the S&P Global kept Italy’s ratings unchanged and Sunday’s election in Spain passed without any upsets, there was a spark in the bond yields and a rise in prices at the start of the week.  These moves gathered pace as data increased the hopes of a recovery for regional economies.  Meanwhile, data on Thursday showed that manufacturing in Spain expanded in April at its fastest rate since January.  Italy’s 10 year bond yield was down 2.5 basis points on the week, which would mark its biggest weekly fall in six weeks.  The Spanish 10 year bond yield was flat at around 1 percent having hit its lowest since late 2016 on Thursday at around 0.97 percent.  Meanwhile, US Treasury yields rose to a one week highs on Thursday as investors reduced their bets that the Federal Reserve will cut rates this year, after bullish economic comments from the Federal Reserve Chairman Jerome Powell.

Precious Gold

Gold fell to its lowest in a week on Thursday, as the FOMC (Federal Open Market Committee)  saw no reason to consider a rate cut any time soon and on lack of physical demand in Asia.  Spot gold fell 0.5 percent to $ 1,270.49 per ounce and fell to $ 1,269.69 its lowest since 24th April , earlier in the session.  Higher interest rates increase the opportunity cost of holding non-yielding bullion and can boost the US-dollar, making gold costlier for investors holding other currencies.

Malta:  March 2019 – Unemployment Rate

In March 2019, the seasonally adjusted monthly unemployment rate was 3.5 percent when compared with 3.6 percent in February 2019.  Males were the main contributors of the overall unemployment rate recorded for March 2019 at 3.7 per cent.  The seasonally unemployment rate for those aged 15 to 24 years was 9.5 percent while the rate for the 25 to 74 age group stood at 2.6 percent. Whilst the seasonally adjusted rate for males was 3.7 percent (February 2019: 3.8 percent), the rate for females stood at 3.1 percent, down by 0.1 percentage over the February levels.

Malta:  March 2019 – Industrial Producer Price Indices

During March 2019, the industrial producer price index registered an increase of 2.03 per cent when compared to the March 2018.  The factors contributing to this increase are a rise of 3.84 percent in intermediate goods, 1.65 percent in consumer goods and 0.15 percent in capital goods.  Meanwhile, no price changes were registered within the energy sector.  The monthly change during March 2019 for the producer price index for the total industry registered a rise of 1.74 percent.  This was mainly due to a price increase of 3.78 percent within intermediate goods and 0.7 percent in the consumer goods sector.  There were no changes within the energy and capital goods sector.

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

May 3rd, 2019


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