“The US Senate Race in Georgia…”

Source: Reuters

Democrats on Wednesday completed a sweep of the two US Senate seats in the runoff elections in the state of Georgia, giving the party control of the chamber and boosting the prospects for President-elect Joe Biden’s policy goals when he takes office in January.  In a statement Biden said, “Georgia’s vote delivered a resounding message yesterday:  they want action on the crisis we face and they want it right now”.  He further added that he would work with both parties to confirm key administration officials quickly.  President Donald Trump is the first president since 1932 to lose the White House and both chambers of Congress in a single term.  Hundreds of Trump supporters stormed the US Capitol in Washington on Wednesday attempting to force Congress to undo Trump’s election loss.  Winning both contests would hand the Democrats narrow control of the Senate by creating a 50-50 split and giving Vice-President Kamala Harris the tie-breaking vote from 20 January. 

Data for US Manufacturing PMI

The US manufacturing activity picked up at its fastest pace in more than six years in December, extending a recovery in the factory sector.  Still IHS Markit’s final manufacturing purchasing managers’ survey of 2020 which was released on Monday showed that the sector’s rebound was uneven.  IHS Markit said that its manufacturing PMI climbed to 57.1 in December from 56.7 in November.  The index finished 2020 at its highest level since September 2014, with the December’s gain marking the eight-straight month of improvement after dropping to its lowest in more than a decade in April when the first round of lockdowns came into effect.   IHS Markit said that with output moderating to 58.3 last month from 59.2 in November, the headline index’s improvement was driven largely by a strong pricing movement. 

US Manufacturing sector Activity

As the pandemic is likely to have pushed demand away from the services sector to goods, US manufacturing activity rose to its highest level in nearly 2 ½ years in December.  The Institute for Supply Management (ISM) said on Tuesday that its index of national factory activity rebounded to a reading of 60.7 last month which was the highest level since August 2018.  In November it was 57.5.  A reading above 50 indicates expansion in manufacturing that accounts for 11.9% of the US economy.  Some of the surprise rebound in the ISM was due to an increase in the survey’s measure of supplier deliveries to a reading of 67.6 last month from 61.7 in November.  As people are working from home and take online classes the demand for electronics, home improvement products and other goods like exercise equipment has increased.  Although demand is strong, manufacturing output is still about 3.8% below its pre-pandemic level according to the Federal Reserve.  

US Private Payrolls

US private companies shed workers in December for the first time in eight months amid the increase in COVID cases that resulted in a wave of new business restrictions that kept people from going to bars and restaurants.  Private payrolls dropped by 123,000 jobs last month according to the ADP National Employment report on Wednesday.  The ADP report is developed jointly with Moody’s Analytics.  The report reflected the recent weakness in consumer spending and the persistent high layoffs.  Besides the increase in the coronavirus cases the labour market has been impacted by the delays from the government to provide another relief package for those in business and the unemployed.  The ADP report was released ahead of the government’s closely watched monthly employment report on Friday. 

UK Factory PMI

The IHS manufacturing Purchasing Managers’ Index (PMI) for December reached 57.5 from 55.6 in November, its highest since November 2017.  The reason for such an increase could be the rush by factories rushed to complete work before the end of the post Brexit transition period on 31 December. According to IHS Markit director Rob Dobson, the surge in December is not unlikely to last.  According to him, “customers especially those based in the EU brought forward purchases, boosting sales temporarily.  It seems that this boost will reverse in the opening months of 2021, making for a weak start of the year.”

Eurozone Manufacturing – 2020

Manufactures in the eurozone ended the year 2020 on a high note with activity in the sector increasing at its fastest pace since mid-2018.  This indicates that Europe’s economy is less hard hit by the pandemic than earlier in the year showed a survey.  The main driving force was Germany.  Whilst the services sector has been badly hit by the lockdown measures factories in the region remained open.  IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) climbed to 55.2 in December from November’s 53.8.  Anything above 50 indicates growth.  December was the highest reading since May 2018.  Meanwhile an index measuring output that feeds into a composite PMI due on Wednesday that is seen as a guide to economic health climbed 56.3 from 55.3.  The eurozone economy is likely to have contracted again last quarter due to renewed lockdown measures that stifled activity.  New orders increased amid strong demand for German goods and in part reflecting a temporary spike in British demand prior to the end of the Brexit transition period.    

Economic Activity in the Eurozone

Economic activity in the eurozone contracted more than was expected at the end of 2020 and could get worse than expected due to the renewed lockdown restrictions, showed a survey. IHS Markit’s final December Composite Purchasing Managers’ Index (PMI) which is seen as a good gauge of economic health rose to 49.1 from November’s 45.3.  Anything below 50 indicates contraction.  The services PMI registered 46.4 in December better than that of November at 41.7.  The final services new business index was 46.6.   

German Retail Sales

German retail sales rose in November and the jobless numbers dropped last month against the forecasts that both readings would drop. November saw retail sales increasing by 1.9% when markets had anticipated a contraction, said the Federal Statistics Office on Tuesday, adding that it expected sales to have grown around 4% during 2020 exceeding the 3.2% expansion in 2019.  The office further said that the monthly increase that covers a period when Germany was in partial lockdown with shops still open was driven by online transactions and spending on home improvements.  Meanwhile the Federal Labour Agency said that the number of jobless fell by a seasonally adjusted 37,000 year on year in December, when the lockdown was tightened, with most shops forced to close from mid-month.  The sectors that were the biggest winners were online and delivery retail, where revenues rose 31.8% compared to November 2019.  Meanwhile spending on household decorations, appliances and building materials climbed by 15.4%.  Mixed retail and clothing sales dropped by 6.1% and 20% respectively. 

Market Wrap

On the first trading session of the year European shares rallied due to the Brexit trade deal and the coronavirus vaccine bolstered expectations of a strong economic rebound.  The pan-regional STOXX 600 index climbed 1.2% reaching February 2020 highs with mining, travel and leisure stocks amongst the top achievers.  London’s blue-chip index rose 1.6%.  The deal which was agreed late in December set rules for industries such as fishing and agriculture, however, did not cover Britain’s finance sector.  Access to the EU’s financial markets came to an end on 31 December.  Shares in UK banks such as Lloyds Banking Group, Barclays and Natwest traded marginally lower.  With regards to the vaccine, Britain on Monday became the first country to roll-out the COVID-19 shot which is developed by Oxford University and AstraZeneca. 

Concerns about a swift global economic rebound increased after a business survey showed that the pace of expansion in China’s industrial sector slowed in December. 

Eyes were on the twin US Senate runoff elections on Tuesday in the state of Georgia which determines control of the chamber and the legislative agenda of President-elect Joe Biden. 

World shares struggled on Tuesday as new COVID lockdowns in Europe and Senate runoff races in Georgia that will impact the incoming US President Joe Biden to pursue his preferred economic policies.  European shares rose lifted by oil and retail stocks. Meanwhile in the UK, the FTSE 100 rose 0.6% boosted by oil majors Royal Dutch Shell and BP.  British fashion retailer Next jumped 8.2% after it said that its Christmas sales were much better than expected. General retailers and energy stocks gained between 2% and 3% respectively.  Britain on Tuesday announced a new GBP 4.6 billion support package, under which retail, hospitality and leisure companies will be able to claim new one-off grants worth up to 9,000 pounds.  Germany’s DAX index was flat with the government also looking to extend a lockdown.  

European stocks edged higher on Wednesday due to banks and energy stocks.  The pan-European STOXX 600 was up 0.2% while the UK’s FTSE 100 rose 0.7% and Germany’s DAX gained 0.2%.  Banks advanced 2.6% whilst construction and material stocks also outperformed on hopes of more infrastructure spending under a Democrat-controlled Senate.  Meanwhile in Europe a pullback in healthcare and tech shares limited the gains in major bourses. 

Thursday saw Wall Street rising with the Dow Jones closing 0.69% higher reaching 31041.13, NASDAQ 100 increasing 2.51% to 12,939.571 and S&P 500 rising to 3803.79 by 1.48%.  European stocks climbed for a second straight session on Thursday as construction stocks gained and commodity-linked shares rose on hopes of larger US stimulus after Democrats won Senate control.  The CAC 40 rose by 0.7% reaching 5669.85, the DAX increased by 0.55% reaching 13968.24 and FTSE 100 climbed by 0.22% reaching 6856.96.

Asia shares reached record highs on Friday and Japan’s Nikkei added 2.36% hitting its highest level since August 1990 as investors looked beyond rising coronavirus cases and the political unrest in the US hoping for an economic recovery later in the year.   European shares markets were set to follow the Asian higher shares.  The upbeat mood came after Wall Street hit record highs on Thursday as markets bet a New Democratic-controlled US government would lead to heavy spending and borrowing to support the country’s economic recovery. 

Cryptocurrencies

Bitcoin traded at $33,365 in Asia on Monday after jumping to a record high of $34,800 on Sunday as investors continue to bet that the digital currency is likely to become a mainstream asset. After touching as high as $33,670 Bitcoin dropped more than 14% wiping away more than half of its 20% rally from the record reached on Sunday of $34,800.    Since mid-March bitcoin has surged some 800%.  Its record high came less than three weeks after it crossed $20,000 for the first time, on 16 December. As the supply of bitcoin is capped at 21 million some see it as a hedge against the risk of inflation as governments and central banks turn on the stimulus taps amid the COVID-19 pandemic.  Some also view the currency as a safe-haven play during the Covid-19 akin to gold.  The potential for quick gains has attracted larger US investors as well as traders who normally stick to equities.  Bitcoin which trades on various exchanges, with Coinbase being one of them, is itself preparing to go public and to become the first major US cryptocurrency exchange to list on Wall Street.  Ethereum, the second biggest climbed to a record $1,014 on Sunday.  Smaller coins that move in tandem with bitcoin fell on Monday though not as sharply.  On Wednesday in Asia, bitcoin traded above $35,000 for the first time.  Bitcoin fell more than 5% on Friday a day after reaching $40,000 for the first time.  It slipped to $36,618.36 on Bitstamp exchange after reaching an all time high of $40,402.46 in the previous session.

Currency Roundup

Sterling weakened against the euro on the first day that Britain is outside the European Union as warnings of a tighter UK lockdown measures have outweighed the relief from the last-minute Brexit trade deal.  By 10:53 GMT on Monday the pound was up 0.2% versus the dollar at $1.3695 and continued with the trend it saw it gain 2.5% in December.  However, against the euro it traded at 89.81 pence down around 0.5% on the day.  After the 24th December Brexit trade deal that set the rules for fishing agriculture and other industries, the pound strengthened against both the dollar and the euro.  On Monday the US dollar fell to mid-2018 lows as bullish sentiment across global markets motivated investors to buy riskier currencies such as the Chinese yuan and the euro.  As interest rates in the US are at record lows, with massive US deficits the dollar weakened on the first day of 2021 after dropping nearly 7% last year.   The Japanese yen was little changed at 103.135 per dollar.  It advanced to 102.715 on the day, the strongest since March as Japan’s prime minister said the government is considering a state of emergency for Tokyo amid a surge in coronavirus cases. The Chinese currency was the biggest beneficiary of the weak dollar with the yuan rocketing to a two-and-a half year high.   The euro was steady at $1.2253 after reaching $1.231 for the first time on Monday since April 2018.                             

On Tuesday the dollar was supported with the surging COVID-19 cases and the uncertainty about the elections in Georgia that increased the demand for safer assets.  The British pound was under pressure as Prime Minister Boris Johnson ordered a nationwide lockdown to slow the spread of the coronavirus variant.    The safe-haven Japanese yen was little changed at 103.135 per dollar. Most Asian currencies were flat to lower on Tuesday due to the US Senate elections that could determine the dollar’s long-term trend.  

On Wednesday the US dollar slipped as Democrats took the lead in run off votes that will determine control of the US Senate and possibly pave the way for a big spending administration under Joe Biden. The euro rose to a new 32-month high and the greenback struck multi-year lows on the Swiss franc.    In late Asia trade the euro rose 0.3% to $1.2335 as the results became clearer. Rising currencies in Asia, where the economic recovery has been most impressive has received a boost from China’s soaring yuan, which increases China’s purchasing power for commodities and other imports.  The yuan has gained 12% on the dollar since last May as China’s economic rebound has helped the world’s pandemic recovery. 

On Friday sterling gained against a weaker euro making up against some of the losses it sustained against at the begging of the new year. 

Gold

Spiking COVID-19 cases and the prospect of tougher restrictions boosted the demand of the safe-haven metal.  On Monday gold prices started the week on a high note.  Spot gold climbed 1.4% to $1,923.70 per ounce having hit its highest since 9 November at $1,925.29.  Meanwhile, US gold futures climbed 1.8% to $1,928.50.  As the dollar fell it made gold cheaper for other unit holders.  Gold received a boost after the British prime minister indicated stricter curbs, while Japan said it will consider declaring a state of emergency in its capital city area.  Investors also kept an eye on Tuesday’s runoff elections in the US state of Georgia that will decide the control of the Senate. 

Oil

Oil prices ended 2020 about 20% below the 2019’s average still recovering from the impact of global lockdown measures, that negatively impacted fuel demand even though the world’s major producers agreed record output cuts. 

Oil prices touched multi-month highs on Monday amid expectations that OPEC and its allied producers could cap output at current levels in February.  Prices moved up in line with financial markets in general with Brent crude futures reaching $53.17 a barrel, the highest since March 2020.

On 1st January a government report showed that  the US crude oil production which remained under pressure from weak prices and low demand was down more than 2 million barrels per day in October from earlier in 2020.   

Oil majors BP, Royal Dutch, Shell and Total climbed between 1.6% and 3.3% as crude prices reached their highest since February 2020 after Saudi Arabia’s pledge to cut output in a meeting with allied producers.  

Malta:  Registered Employment April-May 2020

In a press release dated 7th January by the NSO administrative data provided by Jobsplus shows that over a period of one year, the labour supply excluding part-timers in May 2020 increased by 7.9% reaching 235,309.  This was mainly attributed to a year-on-year increase in the full-time registered employment (14,447) and an increased in registered unemployment.  Comparing May 2020 with May 2019 the highest increase in full-time employment was brought about by administrative and support service activities, human health and social work activities.  Registered full-time employment in the private sector went up by 12,884 persons to 18,396. 

Malta:  Index of Industrial Production – November 2020

In November 2020, the seasonally adjusted index of industrial production decreased by 1.9% over the previous month. The largest decrease was registered in the production of energy and the production of consumer goods.  The production of capital goods and intermediate goods increased by 1.7% and 14% respectively.   When compared to November 2019, the working-day adjusted index of industrial production decreased by 2.6%.  Decreases where registered in the production of energy, capital goods and intermediate goods. 

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

January 8th, 2021


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