“The European Union and the European Central Bank…”

Source: Reuters

On Wednesday, the German Constitutional court decided to dismiss legal challenges against the European Union’s recovery plan, which helps with the stimulus being rolled out across the region. In late March, the highest court in Germany had a number of questions with regards to the EU’s plan to raise €750 billion through financial markets. The reason behind this plan is to fund projects across the European region which would result in a reduction of economic shock from the COVID-19 crisis. The plan had some hiccups due to a group of euroskeptic citizens who showed concerns about the additional borrowing as it could become one of the mean features in EU policymaking. After the announcement, the Euro kept trading slightly lower against the Dollar whilst the Greek 10-year government bond was around the flatline.

On the same day, the European Union started the first steps to prepare legal action against AstraZeneca over the shortfalls in deliveries of Coronavirus vaccine. This is not the first fallout between the EU and the pharmaceutical giant this year. AstraZeneca responded that it was impossible to deliver as much, as the bloc was counting on in both quarters and this caused a delay in the roll of vaccines across the 27 EU nations.

The European Central Bank on Thursday decided not to change its policy, leaving market players looking for clues as to when the monetary stimulus will start to calm down. Keen anticipation for the June meeting, a key moment for monetary stimulus in the euro zone. Some ECB members are optimistic that an increase in vaccination rates together with a slow reopen of economies will lead to the beginning of talks with regards to easing stimulus. But this is highly dependent on how the pandemic and vaccination programs will play out. Christine Lagarde mentioned that for the time being there were no discussions to possibly decrease stimulus, as it was “simply premature.” The ECB’s policy mandate is to keep inflation close but lower than 2%, current forecasts are saying that inflation will be higher than 2% in the last quarter of 2021 but lower in 2022. In March, the European Central Bank estimated a GDP rate of 4% for 2021 and 4.1% for 2022.

On Friday, preliminary data showed that business activity in the Euro Zone rose again in April, signifying positive momentum for the second quarter. HIS Markit’s flash composite PMI for the Euro Zone, a calculation of the activity across both manufacturing and services, in April hit 53.7 while in March it was 53.2, a reading above 50 shows an expansion in economic activity. The flash France composite reached the 51.7 mark in April, which is a nine-month high and the first expansion in business activity since last August. The positive figures in the French economy were mostly due to the services sector and a slight decrease in manufacturing. On the other hand, Germany’s business activity expansion has slightly slowed down in April with a flash composite PMI of 56 from 57.3 in March. There was a decrease in both services and manufacturing supply shortages.

Germany’s Election so far

Early Tuesday morning, German Chancellor Angela Merkel’s conservative alliance finally came to a decision who will represent the centre-right bloc in the national election which will be taking place later this year, following months of uncertainty and delay. Both the centre-right Christian Democratic Union (CDU) and the Bavarian sister party, the Christian Social Union (CSU) could not agree who should lead the conservative into election on the 26th of September 2021 following Merkel’s announcement back in 2018 that she would not run for a fifth term in office. During a meeting of the CDU’s board, a majority of senior party members voted to nominate Armin Laschet, the leader of the CDU and state-premier of North Rhine-Westphalia, as the candidate for chancellor.

In the last couple of years, Germany’s Green Party has transformed from being the party left behind to gaining in popularity and prominence. Now, it looks to be in a position where it could easily start overtaking Chancellor Angela Merkel’s Christian alliance, (CDU-CSU). Recent voting data has showed that the Green Party is in second place to the CDU-CSU. But one Forsa Institute surveyed 1,502 people, resulting in the Greens to be in the lead with 28% of the vote – up 5% from a similar poll conducted between the 6th of April and the 12th of April.

Brexit’s Red Tape

2021 has brought with it a number of adjustments between the European Union and the U.K. after Brexit, causing a decrease in freight trucks making trek across the Irish Sea. For years, the route through the U.K. (approximately 15 hours) has been a fundamental road for getting goods from Ireland to mainland Europe. Ever since the Brexit transition in the end of 2020, trucks from the Republic of Ireland (an EU member) travelling via the U.K. are faced to deal with a lot of paperwork. DFDS, the Danish shipping firm, recently added a route between Rosslare Europort in the southeast of Ireland to Dunkirk. The journey takes about 24 hours and is longer than it would typically take to drive through the land bridge.

U.S. Weekly Jobless Claims

Last week, the U.S. jobs market recovery has increased its pace as fewer Americans formed part of the unemployment line, reported on Thursday by the Labour Department. First-time claims for unemployment insurance were of 547,000, which is lower that the Dow Jones forecast of 603,000 and a new low for the pandemic era. This report clarified that both unemployment and underemployment remain problematic for the U.S. economy. Around 17.8 million Americans are still getting benefits under different programs, though this data is delayed by two weeks.

Biden’s Capital Gains Tax Proposal

America’s President Joe Biden is expected to propose doubling the tax rate for wealthy Americans to pay on investment returns once they sell equities and other assets. With this proposal, the federal capital-gains tax rate would be as high as 43.4% including the existing Medicare surcharge. Currently, investors are paying 23.8% on long-term capital gains which includes 20% capital-gains tax on assets held in taxable accounts of more than a year and 3.8% surtax on net investment income which was created by the Affordable Care Act to help fund the Medicare expansion. Given current law, long-term capital gains are taxed favourable to wages, but the White House’s plan would instead tax capital gains as ordinary income, at maximum rate of 39.6% and it would apply to the individuals with more than $1 million in annual income. The Biden plan would also keep the Medicare surtax in place resulting in a top long-term capital-gains rate of 43.4%.

Market Wrap

On Monday, stocks dropped from record levels due to weakness in the technology sector which highly impacted the whole market. The Dow Jones Industrial Average decreased by 0.4% to 34,077.63, sliding from a record high in the previous session. The S&P 500 dropped by 0.5% to 4,163.26 after closing at a fresh high on Friday. The tech-heavy Nasdaq Composite fell by 1% to 13,914.77. Coca-Cola shares grew by 0.6% after it reported a better than forecasted earnings and revenue. The company informed that it has returned to pre-pandemic levels. The S&P and Dow advanced 1.4% and 1.2% last week, respectively, for their fourth straight week of gains, while the Nasdaq posted its third positive week in a row. The first-quarter earnings started the season on a positive note led by strong bank results, financials earning have topped forecasts by 38% while others in the S&P 500 have increased by 12%.

On Wednesday, equities recovered from two consecutive days of losses. The Dow Jones Industrial Average climbed 0.9% to 34,137.31. The S&P 500 gained 0.9% to 4,173.42, while the Nasdaq Composite rose 1.2% to 13,950.22. The small-cap Russell 2000 increased 2.4%, bringing its 2021 gains to more than 13%. Netflix shares lost 7% due to the reported subscriber additions falling shorter of forecast as the demand due to the pandemic started to fade. The CBOE Volatility Index, also known as the VIX or the market’s fear gauge, inched higher for two consecutive days, landing above 18 on Tuesday after hitting a 14-month low last week. The VIX fell to 17 on Wednesday.

On Thursday, there was a swift reverse to the decline of share prices after reports stated Biden’s proposal for higher capital gains taxes. The Dow Jones Industrial Average fell 1%, to 33,815.90. The S&P 500 erased earlier gains and closed 0.9% lower at 4,134.98, while the Nasdaq Composite dropped 0.9% to 13,818.41. Growth stocks which could come under pressure due to higher capital gains tax, led the intraday decline on Thursday, Tesla and Amazon decreased by 3.3% and 1.6%, respectively. Before the announcement, major averages were trading slightly higher as investors had positive sentiments due to positive corporate earnings and economic data.

Cryptocurrency

Bitcoin’s price fluctuations during the weekend are likely the start for a period of consolidation before the cryptocurrency can inch higher once again. Bitcoin fell below it 50-day moving average and was again below it on Monday. The crypto recently traded close to $65,000 but was around $55,900 on Monday afternoon whilst rival coins like Ethereum also fell. Some crypto-linked shares were also lower, Coinbase lost nearly 2.6%, Voyager Digital -9.6% and Marathon Digital Holdings -8.7%.

Bitcoin together with other digital currencies plunged on Friday due to the proposed capital gains tax hike. Bitcoin fell by over 8% to $48,687, the first time that it traded below $50,000 since early March. Ether dropped by 12% to $2,211 and XRP dropped by 19%. This valuated more than $200 billion from the entire cryptocurrency market. During 2021 only, Bitcoin has increased by 66% while Ether has gone higher than 200%. This has been a ripple affect coming from the increase buying of Bitcoin by institutional investors and companies such as Tesla and Square, who bought billions of Dollars’ worth of Bitcoin.

Malta’s Registered Unemployment March 2021

Data provided by Jobsplus for March 2021 indicate a year-on-year increase of 223 persons registering under Part I, and an additional 39 persons registering under Part II of the unemployment register. Registered unemployment levels increased across all age groups, except for the 25 to 29 age brackets, where the unemployment level remained unchanged when compared to March 2020.Those persons registering for work between 21 and 52 weeks recorded the largest increase, followed by those registering for more than one year. On the other hand, those who had been registering for work for less than 21 weeks, decreased when compared to the same month in 2020. The number of persons with a disability who were registering for work increased by 21 when compared to the previous year, reaching 260 persons. Males accounted for 72.3% of total registrants with a disability. The largest share of males and females on the unemployment register sought occupations as Clerical support workers, with 20.9% and 39.6%, respectively.

Malta’s Retail Price Index March 2021

The RPI measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked with the Cost-of-Living Adjustment (COLA) increases and periodic rent payment adjustments. The highest annual inflation rates in March 2021 were registered in Personal care and health (2.37%) and Recreation and culture (1.12%). On the other hand, the lowest annual inflation rates were registered in Transport and communication (-1.04%) and Water, electricity, gas, and fuels (-0.52%).  In March 2021, the largest upward impact on annual inflation was registered in the Personal Care and Health index (+0.21 percentage points), largely due to higher prices of hairdressing services. The second and third largest impacts were measured in the Recreation and Culture Index (+0.11 percentage points) and the Food Index (+0.11 percentage points) mainly on account of higher prices of private school fees and fruits, respectively. On the other hand, the downward impacts on annual inflation were registered in the Transport and Communication Index (-0.23 percentage points), the Water, Electricity, Gas and Fuels Index (-0.02 percentage points) and the Household Equipment and House Maintenance Cost Index (-0.02 percentage points), mainly reflecting lower prices of fuels, gas and textiles, respectively.

Shilese Bugeja

Client Relationship Manager

Source:

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

Date:

April 23rd, 2021


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