“Surge in Energy Prices…”

Soaring energy prices was a cause of concern among European leaders.  In Europe, natural gas prices have climbed almost 600% this year on worries that current low storage levels will be insufficient for winter.  The uncertainty over whether surging energy prices will spur inflation and interest rate hikes impacted global equity markets and bonds in Europe. Britain was no exception where several energy companies have collapsed amid the price surge.  As consumers face a huge increase in winter fuel bills, energy prices have become the European’s Union political agenda on Wednesday. “I think we have to be very clear that the gas prices are sky-rocketing” EU Commission President Ursula von der Leyen said, calling for a renewed focus on renewables.  Von der Leyen added that the EU, which imports 90% of its gas, notes that Russia had not followed the lead of its other main supplier, Norway, in stepping up supplies.  Meanwhile, President Vladimir Putin said on Wednesday that Russia was boosting gas supplies to Europe and stood ready to stabilise the market.  EU ministers debated whether the bloc should begin jointly buying gas to improve their bargaining position and form strategic supply reserves.  Some EU governments have rolled out national subsidies and other measures, stating this is the best way to cushion customers from high bills. 

European Business Growth

Business growth across Europe remained strong last month however increased inflationary pressures put a dent on demand while ongoing supply issues constrained activity, issues which are likely to continue, a survey showed on Tuesday.  IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good guide to economic health, sank to 56.2 last month from August’s 59.0, although still well above the 50 mark separating growth from contraction.  On Friday a eurozone manufacturing PMI showed growth remained robust in September, however, activity suffered from supply chain bottlenecks and the bloc’s dominant service industry also saw the pace of expansion slow.  A PMI for the services sector fell to 56.4 from 59.0, its lowest since May, while the new business index dropped to 55.3 from 57.9. Demand fell to a five-month low as firms passed on part of the rising input costs, which rose at a record pace, to consumers. Activity in Germany’s services industry continued to grow strongly in September, but the recovery from the pandemic lost momentum as more companies were affected by supply bottlenecks. Meanwhile, Italian and Spanish services growth also slowed.

French Services Sector Growth

Growth in France’s services sector dipped by less than initially forecast in September, according to a monthly poll, although inflationary pressures and COVID-19 had an impact on businesses.  IHS Markit said its Purchasing Managers’ Index (PMI) for the country’s dominant services slipped to 56.2 points in September from 56.3 in August.  A composite PMI index which includes the services and manufacturing sectors, also fell slightly to 55.3 points in September from 55.9 in August.  Nevertheless, the PMIs remained above the 50 point threshold dividing an expansion from a contraction.  IHS Markit said inflationary pressures caused by rising energy prices could also affect businesses in the near term. 

German Industrial Orders

German industrial orders dropped more than expected in August on weaker demand from abroad following two months of unusually strong gains due to major contracts, data showed on Wednesday.  The figures published by the Federal Statistics Office showed orders for goods ‘Made in Germany’ were down by 7.7% on the month in seasonally adjusted terms.  German car companies are struggling to meet a post-pandemic surge in demand since the start of the year due to a lack of microchips and other intermediate products which is holding back the recovery of Europe’s largest economy.  The office said, the steep drop on the month was partly caused by previous orders for planes, ships, and other large vehicles which had pushed up orders by 4.9% in July and 4.6% in June.  Furthermore, the weaker than expected headline figure was lower demand from abroad, especially from clients outside the eurozone area.  According to the economy ministry, overall industrial orders remained at a historically high level and were already 8.5% above their pre-crisis levels of February 2020, the month before Germany was hit by the COVID-19 pandemic. 

German Industrial Production

German Industrial output suffered its steepest drop in August since April last year, amid supply chain disruptions that are holding back the economy’s growth and particularly hitting the autosector hard, showed official data on Thursday.  The Federal Statistics Office said industrial output fell by 4% on the month after an increase of 1.3% in July.  Meanwhile, the production of cars and car parts dropped by 17.5% on the month.  German car companies are struggling to meet a post-pandemic surge in demand since the beginning of the year, amid a lack of microchips and other intermediate products.  

US Trade Deficit

US Trade deficit increased more than expected in August boosted by imports as businesses rebuild inventories, the latest indicating that economic growth slowed in the third quarter.  The trade deficit surged 4.2% to $733 billion, last month, said the Commerce Department on Tuesday. 

Gold

Monday saw gold prices rising to the highest since 23 September.  Gold prices eased on Tuesday pressured by gains on the dollar after some investors moved to the dollar as it is considered a safe-haven currency after a stock market selloff driven by concerns over energy prices.  Spot gold was down 0.7% to $1,756.49 per ounce while the US gold futures shed 0.6% to $1,757.20.  Gold is considered as a hedge against inflation and geopolitical uncertainties.  As a dollar-priced asset it tends to be pressured by the strength of the Dollar, which makes it more expensive for non-US buyers. 

Investors’ focus was also on the US non-farm payrolls data that is due on Friday, and which is expected to show continued improvement in the labour market which could allow the US Federal Reserve to begin tapering its monetary stimulus before year end.  Gold was flat on Thursday.  Spot gold was little changed at $1,763 per ounce while US Gold futures were up 0.1% at $1,764.10 per ounce. 

Currency Roundup

Sterling

Sterling consolidated near a six-day high against the dollar and the euro on Monday, extending the gains.  Against the euro sterling rose to a three-week high, recovering from a sharp selloff last week as traders turn their attention back to the prospect of interest rate rises in Britain.  Rising inflation expectations hit risk sentiment, with bond yields rising as a result, pushing the risk-sensitive sterling to a two-month low versus the euro and to its lowest against the dollar since December 2020. Sterling dropped half a percent against the dollar on Wednesday amid a further surge in energy prices and government bond yields that sent investors into safer currencies.  It hit as low as $1.3559 and was 0.1% weaker versus the euro at 85.18 pence.

Euro

On Tuesday the euro dropped 0.25% to $1.1592 whilst Wednesday saw the currency staying near its 14- month low which struck last week.  Euro remained pinned below $1.16.  

US Dollar

On Tuesday the dollar traded near a one-year high versus major peers ahead of key US payrolls data due at the end of the week.  It was also supported by the equity sell-off that spread from Wall Street to Asia.  The US dollar index which measures the currency against six rivals, rose 0.16% to 93.987.  The dollar benefitted as it is considered a safe-haven currency amid worries about the risk of global stagflation to the US debt ceiling standoff. On Wednesday the dollar gained slightly against a basket of other major currencies supported by the rising yields and was heading back towards a year high hit last month. It also edged higher amid nervousness that surging energy prices could spur inflation and interest rate hikes and measured against a basket of currencies is close to its strongest level in more than a year. 

Market Wrap

European stocks struggled on Monday after their worst weekly showing since February, hit by a growing number of risks including signs of inflation, elevated bond yields and the financial problems of Evergrande.  Asian shares tracked a sell off on Wall Street to weaken for a third straight session on Tuesday, as investors feared that the increase in oil prices while hitting multi-year highs would add to inflationary pressures caused by supply chain disruptions.  Tuesday saw the Dow Jones Industrial Average increasing by 0.92% to 34,312.67, the NASDAQ closing higher with 1.4% to 14,674.15, and the S&P 500 closed higher with 1.05% to 4,345.72. U.S. Treasury yields rose on investor caution about the need to raise the government ‘s debt ceiling as the United States faces the risk of a historic default in two weeks.  Meanwhile European markets closed higher with the CAC 40 increasing by 1.52% to 6,576.28, DAX increased by 1.05% to 15,194.49 and the FTSE 100 increased by 0.94% to 7,077.1. A 3.5% jump in European banks and a rally in technology companies pushed an index of European stocks up over 1% on Tuesday, also helped by positive US data that supported Wall Street.  The European tech sector (.SX8P) jumped 2.2% breaking a seven-session decline where it dropped by 11.7%.  Meanwhile bank stocks (.SX7P) hit an over 1 1/12 year high.   Asian shares dropped on Wednesday and the US benchmark yields rose to a three and ahalf month top as investors remained concerned about inflation with oil prices reaching new multi-year highs.  The worries of investors about inflation also drove a sell-off in longer-dated US Treasuries.  London’s blue chip stocks fell on Wednesday pressured by fears of higher inflation.  The FTSE 100 index eased 1.5% set to record its worst session since August with Astrazeneca, Diageo and Unilever among the top drags. Banking stocks gained by nearly 1% after bond yields hit their highest since May 2019 amid signs of inflationary pressures.  Fears from rising inflation on the back of soaring energy costs, supply side and labour shortages have weighed on equities and as central banks look into withdrawing the monetary support and hike rates to ease cost pressures, European yields climbed from a government sell-off that extended on Wednesday.   Meanwhile, European Central Bank President Christine Lagarde said on Tuesday she still expected supply shortages or rising energy prices to be transitory, reaffirming that the inflation spike will wane next year.  European stocks dropped more than 1% on Wednesday as the surge in oil prices raised further concerns about higher inflation and investors moved out of high-growth stocks into banking shares.  On Thursday Us markets closed higher with the Dow Jones Industrial Average closing 0.98% at 34,754.94, the NASDAQ 100 closing 0.88% higher at 14,897.13 and the S&P 500 closing at 4,399.76 higher by 0.83%.  European markets also closed higher with CAC 40 closing 0.61% higher at 6,600.19, the DAX reached 15,250.86 closing higher by 1.85% and the FTSE 100 closed higher by 1.17% reaching 7,078.04. 

Oil

Oil prices reached a three-year peak on Monday after OPEC+ confirmed it would stick to its current output policy as demand for petroleum products rebounds, despite pressure from some countries for a bigger boost to production.  Oil prices continued climbing on Tuesday with the US crude hitting its highest since 2014 and Brent futures climbed to a three-year high.  US West Texas Intermediate (WTI) oil closed up $1.31 or 1.7% at $78.93 a barrel.  During the session it surged more than 2% to a high as $79.48, the most in nearly seven years.  Brent crude settled 1.6% higher at $82.56.  Oil prices have already surged more than 50% this year, adding to the inflationary pressures that crude-consuming nations such as the US and India are concerned will derail recovery from the COVID-19 pandemic.  Wednesday saw oil prices rising with US crude rising 0.24% to $79.11 a barrel, its highest level since 2014.  Brent crude gained 0.3% to $82.80 per barrel, having hit a three-year high in the previous session. 

Malta:  Inbound Tourism August 2021

Inbound tourists for the first eight months of 2021 amounted to 426,930, a decrease of 20% over the same period in 2020.  Total tourism expenditure was estimated at 416.3 million, an increase of 17.9% when compared to the same period in the previous year.  Total expenditure per capita stood at EUR 975, increasing from EUR 662 in the same period in 2020, mainly as a result of longer stays.  Meanwhile, during the month under review a total of 157,593 inbound tourists visited Malta for holiday purposes, followed by 3,621 tourists for business purposes.  Total expenditure reached EUR 169.4 million, an increase of 79% over the corresponding month in 2020.  The average expenditure per night was estimated at EUR 118.3.

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