“The FED In An Emergency Move…”

The FED in an Emergency Move

In an emergency move the FED cut interest rates on Tuesday by 50-basis points to a target range from 1 percent to 1.25 percent to mitigate the widening economic fallout of the coronavirus.  This was the first emergency cut since 2008.   The decision among policymakers was unanimous.  Fair Chair Jerome Powell reiterated his view that the US economy remains strong, however, the spread of the virus had caused a material change in the US Central Bank’s outlook for growth.     The Federal Reserve failed to calm US financial markets full of worry about a deep slowdown.  The decision by the FED to cut rates before its next scheduled meeting on 17-18 March shows the urgency with which the FED feels it needs to act in order to prevent the possibility of a global recession.

China’s Central Bank

China’s central bank kept the short-term borrowing costs steady on Wednesday.  On its website, the People’s Bank left the reverse repurchase agreements unchanged.


The ECB on Monday said it was ready to take “appropriate and targeted measures” to fight the impact of the coronavirus.  It is also preparing possible measures to provide liquidity to businesses that are hit by the economic fallout of the coronavirus outbreak according to sources familiar with the situation.

US – ADP National Employment Report

The US services sector activity jumped to a one-year high in February suggesting strength in the economy before the recent escalation of recession fears initiated by the epidemic of the coronavirus.  Furthermore, on Wednesday, data showed that private payrolls increased more than expected in February, partly because of the mild weather that has bolstered hiring at construction sites and in the leisure and hospitality industry.  The Institute for Supply Management (ISM) said its non-manufacturing activity index increased to a reading of 57.3 last month, the highest level since February 2019 from 55.5 in January.  A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of US economic activity.

Group of Seven

The unscheduled unanimous decision by the FED to cut rates, followed a statement from finance officials of the Group of Seven major industrial countries earlier the same day.  G7 finance ministers and central bank governors said in a statement issued after a call led by US Treasury Secretary Mnuchin and Federal Reserve Chair Jerome Powell, “Given the potential impacts of Covid-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”  The statement further added, “G7 Finance Ministers and Central Bank Governors stand ready to cooperate further on timely and effective measures.”

World Health Organisation

World Health Organisation said on Monday that coronavirus now appears to be spreading more rapidly outside China than within but can still be contained, and stigma is more dangerous than the disease itself.  WHO chief Tedros Adhanom Ghebreyesus said almost nine times as many cases had been reported outside China as inside in the previous 24 hours, adding that the risk of coronavirus spreading was now very high at a “global level.” He also said that outbreaks in South Korea, Italy and Japan were the greatest concern, but that there was evidence that close surveillance was working in South Korea, the worst affected country outside China, and the epidemic could be contained there.  The global death toll exceeded 3,000 with the number of dead in Italy jumping by 18 to 52 and Latvia, Saudi Arabia and Senegal reporting cases for the first time.


On Tuesday oil prices rose but remained below sessions highs reached after the US Federal Reserve cut the interest rates.  Brent crude was up $1.50 a barrel or 2.7 percent at $53.40 off the session high of $53.90 a barrel hit immediately after the rate cut.  US West Texas Intermediate was up $1.49 a barrel, or 3.1 percent at $48.23 a barrel after trading as high as $48.66.  Brent and WTI have rebounded over the past two days after sliding more than 20 percent from their January peak amid signs that the spread of the coronavirus has damaged fuel demand.   The group had agreed to cut output by 1.7 million bpd in a deal that runs till the end of March.  On Thursday OPEC agreed to cut output by an extra 1.5 million barrels per day in the second quarter of 2020 to support prices amid the outbreak of the coronavirus, however, made it conditional on Russia joining in, said OPEC sources.

International Monetary Fund

The global spread of the coronavirus has crushed hopes for stronger growth this year and will hold the 2020 global output gains to their lowest pace since the 2008-2009 financial crisis, said International Monetary Fund Managing Director Kristalina Georgieva on Wednesday.  She further said that the IMF expects 2020 world growth to be below the 2.9 percent rate for 2019 and revised forecasts will be issued in the coming weeks.  The revised forecast would represent a more than 0.4 percentage- point drop from the 3.3 percent growth the IMF had estimated for 2020 in January as US-China trade tensions eased.  Georgieva said, “Global growth in 2020 will dip below last year’s levels, but how far it will fall and how long the impact will be is still difficult to predict.”  She however, declined to state that the health situation could push the world into a recession.  The IMF is making available $50 billion in emergency funding to help the poor and middle-income countries with weak health systems to respond to the epidemic, she said after a call with IMF’s steering committee.  About $10 billion of this can be accessed by the poorest countries at zero interest for up to 10 years, while many middle-income countries have access to a pool of about $40 billion at low interest for up to five years.

Currency Roundup

Sterling rose against the dollar and the euro on Tuesday as Britain’s difficult trade talks with the EU and expectations of rate cuts to counter effect the damage caused by the Coronavirus kept the currency near recent 4 ½ month lows.  The first round of talks with the EU’s executive arm, the European Commission, is due to last until Thursday with half a trillion Euro’s worth of annual trade at stake.  The currency stood at 86.94 pence per euro up almost 0.3 percent on the day, after having slipped more than 1 percent on Monday.  The US dollar fell across the board on Tuesday after the interest rate cut by the FED.  The dollar index which measures the greenback’s strength against a basket of six other major currencies, was 0.41 percent lower at 97.13.  The index dropped to a near 8 week- low of 96.926 after the interest rate decision.  Investors are the most bullish on the euro against the dollar since November 2016, showed option markets on Tuesday after the US FED cut interest rates.  The Euro is up almost 4 percent in the past 8 days.  Whilst US policy rates stand at a target range of 1 percent to 1.25 percent and have more room to fall, whilst many rates in Europe and Japan are already below zero and monetary authorities are hesitant to lower them further.  Fiscal measures are being discussed to boost the economies of these countries which some believe they could support their currency.

Market Wrap

After the FED cut the rates in an emergency move on Tuesday, eurozone government bond yields fell, while attention turns to whether the ECB will follow, after the bank indicated it is ready to protect the economy from the outbreak of the virus. German 10-year government bond yields were down 1 basis point on the day at -0.62 percent.   Governments and central banks across the globe are under pressure to support growth, which is suffering from travel restrictions, weakening demand, supply chain disruptions and a sharp market sell-off. Italian government bonds rallied strongly as the FED cut boosted risky assets including stocks.   Italy’s 10-year yield was last down 12 bps to 1.03 percent off five-week highs at 1.23 percent hit during the previous session. Tuesday also saw US long-dated Treasury yields hitting record lows following the Federal Reserve’s 50 basis point rate cut in response to the economic fallout from the rapidly spreading virus.  On Wednesday US benchmark Treasury 10-year yields climbed above the 1 percent and the 30-year bonds also rose reaching a session high of 1.689 percent. The yield curve continued to steepen on Wednesday with the spread between the two-year and 10—year widening to 34.40 basis points from 28 basis points on Tuesday. Asian shares rallied for a fourth straight session on Thursday as US markets moved sharply higher and central bank stimulus offered some support.  The US House of Representatives also approved an $8.3 billion funding bill to combat the spread of the virus and sending the emergency legislation to the Senate.  The Dow surged 4.53 percent, the S&P 500 gained 4.22 percent and the NASDAQ 3.85 percent.  The upbeat sentiment comes despite the coronavirus crisis showing no signs of slowing, with mounting deaths globally, whilst Italy closed all of its schools and California declared a state of emergency as cases there grow.    Also, on Thursday, safe-haven German government bond yields edged up from six-month lows amid the steps taken by policymakers to safeguard against the coronavirus outbreak.  After dropping for 20 basis points in the past two weeks, bond investors are awaiting signs of a likely action from the European Central Bank.

Malta:  Unemployment Rate January 2020

The seasonally adjusted monthly unemployment rate for January 2020 reached 3.4 percent, with a drop of 0.2 percent over the same month in 2019. In January 2020 the seasonally adjusted unemployment rate for males was 3.2 percent (up by 0.1 percent over the previous month), while the rate for females stood at 3.6 percent (increasing by 0.1 percent when compared to December 2019).  Also, the seasonally adjusted unemployment rate during January 2020 for persons aged 15 to 24 years was 9.5 percent while the rate for the 25 to 74 age group stood at 2.5 percent.

Malta:  Registered Employment:  September 2019

In a press release by Malta’s National Statistics Office and administrative data provided by Jobsplus, over a period of one year, the labour supply in September increased by 5.6 percent reaching 223,029.  This increase was attributed to a year on year increase in full-time registered employment and a decline in registered unemployment.  Comparing September 2019 to September 2018, the highest increase in employment was attributed to construction, administrative and support service activities.  Meanwhile, registered full-time employment in the private sector increased by 10,979 to 172,840 and public sector full time-employment increased by 1,004 persons to 48,521.

Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt


March 6th, 2020

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