“The German Economy…”

The German economy shrank more than expected in the first quarter as the coronavirus related restrictions motivated households to put more money than ever into savings, showed data on Tuesday.  Europe’s largest economy contracted by 1.8% quarter on quarter and by 3.1% on the year, said the Federal Statistics Office.  German households’ disposable income increased slightly from the government’s ploughed billions of Euro into job protection schemes and cash handouts such as extra child benefits.  Household spending dropped by 5.4% on the quarter as the savings rate rose to a record high of 23.2%.  Company investments in machinery and equipment fell slightly however, construction activity rose.  Exports increased by 1.8% on the quarter helped by strong demand from the US and China, while imports rose 3.8% meaning net trade pushed down overall growth as well.  The quarter-on-quarter GDP data compared with a Eurozone average of -0.6% and growth of 0.4% in France, while the economy of the US grew 1.6%. Year-on-year eurozone economy shrank by 1.8%.  

German Business Morale

German Business Morale was uplifted more than expected to hit a two-year high in May as companies became more upbeat in light of falling COVID-19 infections and cautious towards re-opening Europe’s largest economy, showed a survey on Tuesday.  The IFO institute said its business climate index rose to 99.2 from a revised 96.6 in April.  In a statement, IFO President Clemens Fuest said, “The German economy is picking up speed.”  The survey which was undertaken among some 9,000 firms in manufacturing, the service sector, trade, and construction showed that businesses are more satisfied with their current situation and they were also more optimistic about the upcoming six months.  Meanwhile, detailed Gross Domestic Product data released earlier on Tuesday, showed that the German economy shrank more than expected in the first quarter as coronavirus led consumers to save more. 

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits dropped more than expected last week as layoffs dropped, as companies were desperate for workers to meet increasing demand due to the reopening of the economy.   Initial claims for state unemployment benefits totalled a seasonally adjusted 406,000 for the week ended 22^nd May, compared to 444,000 in the prior week, declared the Labour Department on Thursday. This was the lowest since mid-March 2020. 

Key US Inflation Gauge

A key inflation indicator rose by faster-than-expected a 3.1% in April amid price pressures built in the rapidly expanding US economy, reported the Commerce Department on Friday.  The core personal consumption expenditures index was expected to increase 2.9% after increasing by 1.9% in March.  Federal Reserve officials consider the measure to be the best gauge for inflation.  The FED considers 2% to be healthy although it is committed to let the level to average higher than usual in the interest of promoting full employment.   The index captures price movements across a variety of goods and services and is generally considered a wider-ranging measure for inflation as it captures changes in consumer behaviour and has a broader scope than the Labour Department’s consumer price index.  The CPI accelerated 4.2% in April.  Over the past month, PCE increased by 0.7% also faster than the expected 0.6%.  Including volatile food and energy prices, the headline PCE index jumped 3.6% year over year and 0.6% from March.  Meanwhile disposal personal income, after taxes and other withholdings dropped by 14.6%. Although inflation increases at a consistent pace most Fed officials remain reluctant to change the policy. 

China’s Industrial Profits

Earnings at China’s industrial firms grew at a slower pace in April, with high commodity prices and weaker performance in the consumer goods sector limiting overall profitability from manufacturing.  Profits at China’s industrial firms rose 57% year-on-year in April to ¥ 768.63 billion down from 92.3% in March, showed data from the National Bureau Statistics (NBS) on Thursday.  For the January-April period, industrial firms’ profits grew 106% from the same period a year earlier to ¥ 2.59 trillion, impacted by the virus-related plunge in activity last year. 

Cryptocurrencies

Bitcoin jumped more than 10% amid a surge in cryptocurrencies on Monday, regaining some ground lost during a sell-off weekend that sparked renewed signs of a Chinese crackdown on the emerging sector.  Bitcoin reached approximately $39,400 erasing the losses of 7.5% a day earlier but still down by more than 40% from last month’s record high. Bitcoin is up approximately 35% this year however down nearly 40% from the year’s high of $64,895.22 reached on 14^th April.   Ether, the second-largest cryptocurrency jumped nearly 19% to $2,491 after dropping more than 8% on Sunday, to near a two-month low.  It has also dropped by almost half from a peak hit earlier this month.   Bitcoin added to its gains late on Monday, after tweets from billionaire Elon Musk that appeared to soften his stance against the environmental impact of the cryptocurrency.  On the 12^th May, Musk said that Tesla will no longer accept Bitcoin due to its consumption of fossil fuels during the mining process.  In the past week, policymakers have stepped up their response to the popularity and volatility of cryptocurrencies.  On Monday, Federal Reserve Governor Lael Brainard spoke at a virtual conference organised by Coindesk that the growth in “private money” digital payments and steps by other central banks were sharpening the focus on Central Bank Digital Currencies (CBDC). Although her comments did not cause much of a price move, she did say that the wide use of private money arises consumer and stability risks amid the “run-like behaviour”.  Her comments were echoed later in the day by Atlanta Fed President Raphael Bostic who said “The crypto space in particular right now if you characterised it, is an extremely volatile market and I don’t think its characteristics right now are conducive for them to be currency.”  The main reason for Sunday’s slump was cryptocurrency “miners” who mint cryptocurrencies by using powerful computers to solve complex math puzzles.  Bitcoin climbed above $40,000 on Wednesday, for the first time this week, as recent volatility in the cryptocurrency market showed few signs of moving down.  China’s northern region of inner Mongolia escalated a campaign against cryptocurrency mining on Tuesday, publishing draft rules to root out the business, days after Beijing vowed to crack down on Bitcoin mining and trading.   

Oil

Oil prices rose more than 3% on Monday, as the increase in demand fuelled by COVID-19 vaccination gave traders hope that the market can absorb any Iranian oil that would come on the market if Western talks with Tehran lead to the lifting of the sanctions. Furthermore, a decline in the deaths due to COVID -19 in India bolstered expectations that oil demand could rise in the coming weeks. Brent crude oil futures settled up 3% at $68.46 a barrel, while July US West Texas Intermediate ended at $66.05 a barrel up by 3.9%.  Indirect negotiations between the US and Iran are due to resume in Vienna this week.  Talks were given another life after Tehran and the UN nuclear agency extended a monitoring agreement on the Middle Eastern country’s atomic programme.  Donald Trump withdrew the US from the deal in 2018 and re-imposed sanctions.  Oil prices were steady on Tuesday holding around one-week highs after climbing more than 3% in the previous session.  Brent crude futures were down 0.01c at $68.45 a barrel while US West Texas Intermediate futures were off 0.08c at $65.97 a barrel.  Oil settled higher on Wednesday, as a drop in US crude stockpiles reinforced expectations of improved demand ahead of the peak summer driving season, offsetting the worries that a possible return of Iranian supply would cause a glut.  Brent settled 0.3% higher to reach $68.87 a barrel while US West Texas Intermediate crude settled 0.2% at $66.21 a barrel. 

Currency Roundup

The Dollar traded at the bottom of its recent range on Tuesday, as softer than expected US data and fresh insistence from the FED officials that policy would stay on hold.  The Pound rose moving back towards the three-month high reached at the end of last week boosted by expectations of further relaxation of social restrictions linked to the COVID-19 pandemic by the end of June.  The British Pound’s performance this year has been second to the commodity driven Canadian Dollar among the G10 currencies, encouraged Britain’s fast rollout of vaccines that encouraged hopes of the economy reopening.   The British currency’s recent rise against the Dollar has been supported by investor concerns that rising inflation in the US could prompt interest rate increases.  Meanwhile, Bank of England Governor Andrew Bailey said on Monday, that he does not see long-term implications from an expected pick-up in inflation. Turkish Lira edged slightly lower, impacted by the removal of one of the Central Bank’s four deputy governors. 

US Dollar traded near multi-month lows after the US FED reaffirmed the monetary policy stance, reassuring investors worried about the prospect of rising inflation.  In New Zealand, the Central Bank held interest rates at a record low on Wednesday, however hinted at a hike as early as September next year. The prospect of higher rates sent the New Zealand Dollar soaring more than 1%.

The British Pound traded within recent ranges against the Dollar and the Euro on Wednesday, amid a lack of fresh economic catalysts that kept the currency in consolidation mode.  Britain started its third phase of reopening last week, allowing indoor dining in pubs and restaurants.  Economic indicators such as retail sales are looking good, as are surveys of purchasing managers across industries.  Against the Euro the Pound was flat at 86.57 pence and off a two-week low of 86.20 hit against Euro on Tuesday. 

On Thursday, the Dollar struggled to hold on to its gains as investors weigh up if the Federal Reserve is moving closer to taper its asset purchases and traders waiting the closely watched US inflation data.  The Euro traded at $1.2199 unchanged on the day and the Yen traded near a one-week low at ¥109.13 per Dollar.  Sterling dipped to a week-low of $1.4136 before recovering slightly. 

Market Roundup

European stocks held close to record highs on Monday, with technology stocks leading the charge.  Investors counted on the strength in corporate earnings to keep the market momentum going.  The pan European STOXX 600 index rose 0.1% to 445.07 points, just below its record high of 446.19 points.  Whilst European technology stocks jumped 1%, the more economy sensitive sectors such as banks and basic resources traded in the red.  Trading activity was subdued with markets in Austria, Denmark, Hungary, Norway, Switzerland, and Germany closed for a holiday.  Helping sentiment was Europe’s Central Bank Christine Lagarde who on Friday said it was too early to discuss the policy that the ECB will take after the end of its €1.85 trillion emergency bond purchase scheme.  The Central Bank shall meet early next month to discuss its policy. 

European stocks hit record highs on Tuesday, amid a billion-Dollar takeover deal that combines two of Germany’s biggest property developers.  The pan European STOXX 600 .STOXX climbed 0.3% to 446.44 points an all-time high.  The index also surpassed its early-May peak of 446.19.  DAX gained 0.8% also hitting a record high after a long weekend boosted by the news about Europe’s largest residential property group Vonovia SE (VNAn.DE) agreed to take over its rival Deutsche Wohnen (DWNG.DE) for about €18 billion.   Deutsche Wohnen climbed 15.7% while Vonovia slipped 6.2% andEurope’s wider real estate index added 0.8%.  Meanwhile, technology stocks increased 1% after their Wall Street peers climbed overnight over insistence by US FED officials that loose policy would stay on hold. Wall Street main indexes traded choppy with the tech heavy NADAQ leading gains as inflation worries and US bond yield eased for the fourth straight day.  The Dow Jones and the S&P 500 closed lower with -0.24% and 0.21% reaching 34,312.46 and 4,188.13, respectively. Amongst the S&P sectors tech, consumer discretionary and financials ticked higher, while energy and utilities dropped about 1%.    Meanwhile, yields on 10-year Treasury bonds slipped to a fresh two-week low on Tuesday.

European stocks rose on Wednesday, as a host of central policymakers pledged to keep monetary policy loose despite recent signs of an uptick inflation.    CAC 40 closed 0.02% higher at 6391.6,   DAX dropped 0.09% reaching 15,450.72, and FTSE 100 also dropped 0.04% reaching 7,026.93. British retailer Marks & Spencer jumped 5.5% despite reporting and 88% slump in full year profits. Asian shares rose on Wednesday’s reaffirmation by the FED of a dovish monetary policy stance.  

European shares were trading flat on Thursday, as investors awaited key US labour data while German data fell the most amid losses in pharmaceuticals maker Bayer after an unfavourable court ruling. 

Malta:  Retail Price Index – April 2021

In April 2021, the annual rate of inflation as measured by the RPI was 0.87% up from the 0.4% in March 2021.  The largest upward impact on annual inflation was measured in the Recreation and culture index (+0.4%) while the downward impact was recorded in the Transport and communication index (-0.22%). 

Malta:  Short Term Industrial Indicators

A press release dated 21^st May shows that during the first quarter of 2021, seasonally adjusted industrial turnover decreased by 1.2% over the previous quarter. Whilst decreases were recorded in capital goods (8.5%) and consumer goods (1.9%) increases were registered in energy (3.7%) and intermediate goods (2.7%).  Seasonally adjusted industrial employment decreased by 0.2% and seasonally adjusted industrial gross wages and salaries rose by 0.9%.   

When compared to the corresponding quarter of 2020, working-day adjusted industrial turnover decreased by 2.6%.  Decreases were registered in capital goods (16.5%), energy (1.8%) and intermediate goods (1%).  An increase was registered in consumer goods (3.4%). 

Malta: Short-term Services Indicators Q1/2021

In a press release dated 24^th May, when compared to the fourth quarter of 2020 the seasonally adjusted services index increased by 11.2%.  Increases in turnover were recorded in accommodation and food service activities (23.4%), transportation and storage (19.5%), real estate activities (17.5%), wholesale trade (15.6%), professional, scientific, and technical activities (15%) and administrative and support service activities (4.4%).  Meanwhile, motor trade, information, communication activities and retail trade registered negative changes in turnover of 0.7%, 0.6% and 0.1% respectively. Seasonally adjusted employment and hours worked declined by 0.4% and 1.6% respectively.  Seasonally adjusted gross wages and salaries increased by 2.6%.  In comparison to the first quarter of 2020, the working-day adjusted services turnover index decreased by 9.1%.  Decreases in turnover were registered in the accommodation and food service activities (49.5%), administrative and support service activities (28.7%), transportation and storage (15%) wholesale trade (13.7%), motor trade (7.5%) and retail trade (4.9%.  Meanwhile, turnover increases of 13.3%, 6.1% and 0.9% were registered in the information and communication, real estate activities and professional, scientific, and technical activities, respectively.

Malta – Registered Unemployment April 2021

In a press release dated 26^th May 2021, data provided by Jobsplus for April 2021 indicates that registered unemployment levels decreased across all age groups.  The number of persons registering for work stood at 2,248 decreasing by 1,731 in comparison to 2020.  The largest share of males and females on the unemployment register are Clerical support workers with 21.8% and 40% respectively. 

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