“The IMF On The Global Economy…”

The IMF On The Global Economy

According to the International Monetary Fund on Tuesday, the global economy is expected to shrink by 3.0% during 2020 amid the drop-in activity from the coronavirus that will mark the steepest downturn since the Great Depression of the 1930s.  In its 2020 World Economic Outlook, the IMF predicted a partial rebound in 2021, with the world economy growing at a 5.8% rate. It also said that the forecasts were marked by “extreme uncertainty” and outcomes will depend on the course the pandemic will take. The forecasts by the IMF assume that the outbreak from the novel coronavirus will peak in most countries during the second quarter and fade in the second half of the year, with business closures and other containment measures gradually unwound.  Meanwhile a longer pandemic that lasts through the third quarter could cause a further 3 percent contraction in 2020 and a slower recovery in 2021 due to the “scarring” effects of bankruptcies and prolonged unemployment.  “It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” the IMF said in its report. “The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.”  Euro zone economies will contract by 7.5% in 2020, with hard-hit Italy seeing its GDP fall 9.1% and contractions of 8.0% in Spain, 7.0% in Germany and 7.2% in France, the Fund said. Meanwhile China, where the coronavirus outbreak peaked in the first quarter and business activity is resuming with the help of large fiscal and monetary stimulus, will maintain positive growth of 1.2% in 2020, a reduction from 6% growth in the IMF’s January forecast. China’s economy is forecast to grow 9.2% in 2021, the IMF said.

Currency Roundup

Commodity currencies slipped against their safe-haven rivals such as the dollar and the yen on Monday as a record output cut agreed by OPEC and other oil producing nations failed to offset  concerns over the slump in demand.  Currencies from Norway, Mexico and Canada all major oil producers got a boost on Friday as the agreement to cut output began to take shape, but these gains disappeared on Monday as investors avoided risky assets.  The cautious mood boosted the yen, which is often seen as a safe-haven during times of market and economic stress because of Japan’s current account surplus.  On Monday the yen rose to 107.83 yen per dollar and jumped more than 0.5 percent against the Australian and New Zealand currencies.  Against the safe-haven Swiss franc the greenback held steady at 0.9644 while the dollar edged up to $1.0950 per euro.  Sterling rose 0.3 percent to $1.2509 and reached 87.57 pence per euro.  The currency retained its gains after Prime Minister Boris Johnson left hospital after being treated for COVID-19. The dollar dropped on Wednesday as investors cautiously stepped into riskier currencies after US President Trump is considering rolling back some restrictions that were put in place to contain the coronavirus pandemic.  Meanwhile, the yuan eased after the People’s Bank of China touched its guidance range for the currency slightly lower and cut the interest rate on its medium-term funding for financial institutions to a record low.  The dollar fell 0.16 percent to 107.05 yen on Wednesday to close to its lowest in a month and slipped to $1.0994 per euro the weakest in two weeks.  Meanwhile, against the sterling the dollar advanced to $1.2588.  Trump on Tuesday said that he is close to completing a plan to end the coronavirus shutdown and would speak with governors of all 50 states to authorise them to open their economies on a timely manner.  The US has seen daily fatalities falling sharply and states are making plans to businesses open again.  Weighing on the dollar are the large amount of greenback liquidity provisions, credit backstops, and monetary easing by the FED to contain the damage caused by the pandemic.  Sterling rose to a one month high on Tuesday versus the dollar and the euro as there are signs that the lockdown measures may be slowing the spread of the virus. Sterling has benefited from improved risk sentiment this month as some countries consider reopening their economies as experts warn Britain may be on course to be the worst-affected country in Europe.  On Wednesday the dollar erased losses against its rivals amid concerns that the economic damage to the global economy from the coronavirus pandemic will be long, boosting the demand for the greenback.  The dollar extended gains on Thursday as the damage from the coronavirus has hammered the world’s economy appetite for risk.

Market Roundup

US stock index futures declined more than 1 percent on Monday after a strong rally last week and investors bracing for the earnings season.  The S&P 500 SPX had fallen to nearly 35 percent from its mid-February record highs, but the unprecedented US fiscal and monetary stimulus and early signs that the outbreak could be peaking have helped it recover about 27 percent.  Trading was subdued as financial markets in Australia, New Zealand, Hong Kong and Britain were closed for the Easter Monday holiday. European shares ended higher on Tuesday as better-than-expected data from China added to signs that’s the measures of lockdowns to contain the spread of the virus were working.  The pan-European STOXX 600 index closed up 0.6 percent after a strong close last week that was powered by another aggressive round of stimulus.  Spanish shares gained 0.5 percent as some businesses reopened on Monday but shops, bars and public spaces were set to stay closed until at least 26 April.  Almost all the major European country bourses were trading higher and sentiment was lifted by data showing a smaller than expected decline in China’s exports and imports.  The benchmark STOXX 600 index has recovered about 24 percent or nearly $2 trillion in market value in the past month, boosted by global fiscal and monetary stimulus, including the half-a-trillion euros worth of support for European economies announced last week.  Although the index remains 22.5 percent below its mid-February record highs, Europe’s volatility gauge .V2TX has steadily declined since hitting a record high mid-March and is now at levels last seen in 2015.  London’s FTSE lagged the broader rally, weighed down by oil stocks and a slump in British American Tobacco on reports of a US criminal probe.  Signs that Britain will remain under lockdown for a longer period also had an impact on the index.  European shares ended in the red on Wednesday ending a five-day rally as the first batch of earnings reports underlined the business damage from the coronavirus pandemic, whilst energy stocks dropped on worries of a plunge in oil demand.  The pan-European STOXX 600 index slipped 3.3 percent after having risen almost 8 percent since April 6.  US majors JP Morgan Chase &Co and Johnson and Johnson kicked off the first-quarter earnings season on Tuesday with gloomy forecasts for 2020 as the pandemic affected business activity and erased liquidity.  French shares fell 3.8 percent as France became the fourth country to report more than 15,000 deaths due the coronavirus after Italy, Spain and the United States.  Meanwhile, US stocks fell on Wednesday as dismal economic data and first-quarter earnings reports compounded concerns over the extent of damage from the pandemic. European shares rose on Thursday as the daily coronavirus death tolls in Spain and Italy eased, while a defiant statement on the crisis from the continent’s big budget airlines helped batter travel stocks recover.  The pan-European STOXX 600 index added 1% climbing for the sixth time in seven days.  The early gains were driven by technology, autos and financial stocks, while the travel and leisure index was boosted by a 6.2 percent jump for budget carrier Easyjet as it said it had access to enough cash reserves to survive a lengthy fleet grounding.  Asia’s stock markets retreated from their highest levels for a month.

Oil Prices

Over the weekend major oil producers agreed to their biggest-ever output cut, but crude prices were subdued due to concerns that this would not be enough to head off oversupply as demand is hammered with lower demand. OPEC and allied led by Russia agreed to reduce output by 9.7 million barrels per day (bpd) in May and June equal to 10 percent of global supply.  Both Brent and WTI have lost more than half of their value so far this year.   US Crude prices fell to an 18-year low and Brent lost more than 6 percent on Wednesday after the US reported its biggest weekly inventory build, while global demand is expected to fall to quarter-century lows due to the coronavirus pandemic. Brent crude settled at $27.69 a barrel, dropping $1.91 or 6.45 percent, while US West Texas Intermediate crude settled at $19.87 a barrel dropping 1.19 percent.  The US Energy Information Administration (EIA) said, crude stocks in the US, the biggest crude-producing country surged by 19 million barrels last week, while refiners cut their capacity to their lowest levels since 2008 amid the drop in demand caused by efforts to control the spread of the virus.   Furthermore, the EIA forecasts that oil demand would drop 29 million barrels a day in April to levels unseen in 25 years and said that no output cut could fully offset the near-term falls facing the market.

US Retail Sales

U.S. retail sales suffered a record drop in March due to mandatory business closures and drop in demand for a range of goods. The report from the Commerce Department on Wednesday came as millions of Americans have been thrown out of work.  Retail sales plunged 8.7% last month, the biggest decline since the government started tracking the series in 1992.   Compared to March last year, retail sales dropped 6.2%.  Consumer spending accounts for more than two-thirds of U.S. economic activity. It grew at a 1.8% pace in the fourth quarter, with the overall economy expanding at a 2.1% rate over that period.

US Weekly Jobless Claims

Another 5.2 million more Americans sought unemployment benefits last week, lifting total filings for claims over the past month above 20 million.  This shows the deep economic slump caused by the coronavirus outbreak. According to the Labour department on Thursday 5.245 million new unemployment claims were filed last week, down from a slightly revised 6.615 million the week before.  According to economist’s prediction the economy, which they believe is already in recession, contracted in the first quarter at its sharpest pace since World War II.  Weekly jobless claims are being closely watched, as they give the timeliest data about the health of the economy, and give clues about the depth of the downturn.  Last week’s claims data brought the cumulative unemployment benefits claims to more than 20 million since the week ending March 21.

China’s Trade In March

The plunge in China’s exports and imports eased in March as factories resumed production.  However, shipments are set to shrink sharply over the coming months as many economies have shut down amid the coronavirus pandemic.  Customs data on Tuesday showed that overseas shipments fell 6.6 percent in March year-on-year, improving from a 17.2 percent slide in January-February, as exporters rushed to clear a backlog of orders after forced production shutdowns.  While the trade figures were not bad as feared, analysts say the export and overall growth outlook for the world’s second-biggest economy remains gloomy as the pandemic has brought business activity across the globe to a standstill. The overall trade surplus last month stood at $19.9 billion compared with an expected $18.55 billion and a deficit of $7.096 billion in January-February.

The FED

On Tuesday the FED launched a funding backstop to address liquidity problems that has affected the commercial paper market.  The Commercial Paper Funding Facility’s special purpose vehicle will purchase higher rated, three-month unsecured and asset-backed paper from eligible bank, corporate, special-purpose entity, and municipal issuers using financing from the New York Federal Reserve.  This is similar to the operation used in 2008 financial crisis whereby the FED acts as a lender of last resort for companies that are otherwise unable to borrow in the short-term market. The FED took steps in this direction as short-term credit markets struggled amid worries that companies hit by efforts to slow the spread of the virus would not be able to repay their IOUs.

Coronabonds

European Central Bank policymaker Vitas Vasiliauskas on Tuesday told Reuters that it is high time that eurozone governments issued joint debt to finance their response to the coronavirus pandemic.  Last Thursday European Union Finance ministers agreed to a half-a-trillion euros worth of support to economies, including almost unconditional access to credit from the eurozone’s European Stability Mechanism (ESM) bailout fund.  There is the question of how to finance the recovery in a bloc headed for a steep recession and the frustrating demands by indebted countries such as Italy for issuance of joint “coronabonds”.  Italian bond yields were rising on Tuesday as investors were disappointed by the size and scope of last week’s deal.  The deal left the ECB with a planned 1.1 trillian euros worth of asset purchases this year.  Vasiliauskas also said he would be open to broadening the palette of assets the ECB can buy, in particular the corporate sector, where it is hoovering up investment-grade bonds and commercial paper.

Gold

Gold prices fell on Wednesday as investors locked in profits after rallying to more than seven-year high in the previous session.  Spot gold was down 0.7 percent at $1,715.02 per ounce on Wednesday whilst in the previous session it jumped as much as 1.9 percent to its highest since November 2012 at $1,746.50.  Demand for gold tends to benefit from a widespread stimulus from central banks, as it is often seen as a hedge against inflation.  Lower interest rates lower the opportunity cost of holding non-yielding bullion.  Gold exchange traded funds continued to see inflows, with holdings of the world’s largest gold-backed ETF, SPDR Gold Trust GLD now near its highest since May 2013 at 1,017.59 tonnes.

G20 Sets Ground Rules For Facebook’s Libra Stablecoin

The Group of G20 regulatory watchdog said on Tuesday that the world’s leading economies need to plug gaps in the rulebooks to avoid digital currencies like Facebook’s planned Libra stablecoin from undermining financial stability.   The G20 Financial Stability Board (FSB) set out 10 recommendations on Tuesday for a common, international approach to regulating stablecoins, prompted by social media giant Facebook proposing its Libra stablecoin.  It said, they should face the same rules as other businesses that present the same risks regardless of technology used.  The recommendations propose flexible, cross-border cooperation to avoid a stable coin playing off one jurisdiction against another.  It further added that stablecoin operators must effectively manage risks, be operationally resilient, have safeguards against cyber-attacks and systems to stop money laundering and terrorist financing.

Malta – Registered Employment 2019

In October 2019, registered full-time employment increased by 5.7 per cent while part-time employment as a primary job increased by 3.1 per cent when compared to the corresponding month in 2018.  Administrative data provided by Jobsplus show that, over a period of one year, the labour supply (excluding part-timers) in October increased by 5.6 per cent, reaching 224,744. This was mainly attributed to a year on year increase in the full-time registered employment (12,099) and a decline in registered unemployment (124).  Meanwhile, comparing October 2019 to October 2018 the highest increase in employment was brought about by administrative and support services and construction.  Registered full-time employment in the private sector went up by 11,045 persons to 174,438 whilst Public sector full-time employment increased by 1,054 persons to 48,640.

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