“US Inflation…”

Underlying US Consumer prices increased at their slowest pace in six months in August as used motor vehicle prices tumbled, indicating that inflation has probably peaked, though it could remain high for a while amid the persistent supply constraints.  The slowdown in price pressures reported by the Labour Department on Tuesday aligns with Federal Reserve Chair Jerome Powell’s belief that high inflation is transitory.  The consumer price index excluding the volatile food and energy components edged up 0.1% last month.  This was the smallest gain since February and followed an 0.3% rise in July.  The key drivers behind the increase in inflation at the beginning of the year were robust increases in the prices of used cars and trucks as well as services in industries badly impacted by the COVID-19 pandemic.  Fares of Airlines plunged 9.1% in August, amid a resurgence in infections of the Delta variant cases that sapped demand for air travel. 

UK employee numbers

British employers added a record 241,000 staff last month, lifting the total number of employees on company payrolls to just above the level before Britain first went into a COVID 19 lockdown last year, official data showed on Tuesday. The strong Jobs data comes as Britain’s government prepares to end its furlough programme on 30 September.   Tuesday’s figures mark an upturn from July’s weak economic data. 

UK Inflation

Inflation in the UK hit more than nine-year high last month after the biggest monthly jump in the annual rate in at least 24 years, largely due to a one-off boost that pushed down restaurant meal prices last year.  Consumer prices rose by 3.2% in annual terms last month after a 2% rise in July, the highest rate since March 2021, said the Office for National Statistics.  The 1.2% rise in the annual rate of inflation in the space of a month marked the sharpest such increase since detailed records started in 1997.  The initial market reaction to the data was limited.  The UK FTSE 100 edged lower and mid-cap stocks dropped 0.2% after data related to British inflation. 

German Economy

The German economy will grow slower than expected this year amid supply chain problems and shortages of raw materials that keep the lid on the industrial recovery, however it should rebound strongly next year, said the DIW economic institute on Thursday.  The DIW cut its growth forecast for this year to 2.1% from the previous 3.2%, however, predicted an increase of 4.9% in 2022 assuming production constraints lift towards the end of the year. 

US Retail Sales

US Retail Sales unexpectedly increased in August likely due to back to school shopping and child tax credit payments from the government.  Retail sales rose 0.7% last month said the Commerce Department on Thursday.  Data for July was revised down showing retail sales declined by 1.8% rather than 1.1% as previously reported.  Retail sales are holding up despite spending is shifting back from goods to services like travel and entertainment. However, the increase in the number of COVID-19 infections are likely to delay the services spending boom. 

US Import Prices

US Import Prices dropped for the first time in 10 months in August amid a drop in the costs of petroleum products.  This is further evidence that inflation had probably peaked.  Import prices dropped 0.3% last month after increasing 0.4% in July, said the Labour Department on Wednesday.  The run up in prices focused on used cars and trucks, and services and industries worst affected by the COVID-19 pandemic is slowing.  However, strained supply chains will likely keep inflation elevated for sometime. Imported fuel prices dropped 2.3% last month after increasing 3% in July.  Petroleum dropped 2.4% while the cost of imported food rose 0.6%.  Excluding fuel and food, import prices fell 0.2%. These so-called core import prices gained 0.1% in July. There were marginal increases in the prices of imported capital goods and consumer goods, excluding automobiles.

Prices for imported motor vehicles, parts and engines rose 0.3% after increasing 0.4% in July. The cost of goods imported from China gained 0.4% after rising 0.6% in July.

The report also showed export prices climbed 0.4% in August, the smallest gain since October 2020, after shooting up 1.1% in July. Prices for agricultural exports rebounded 1.1%. That followed a 1.7% decrease in July. Export prices rose 16.8% year-on-year in August after jumping 17.0% in July.

There were increases in the prices of nuts, wheat, meat, vegetables, and dairy products, which offset lower prices for corn, animal feeds, fruit, and soybeans. Agricultural export prices advanced 33.4% over the past year.    

Japan’s Exports Growth

Japan’s exports extended their gains in August led by strong shipments of chip manufacturing equipment.  The Ministry of Finance said on Thursday that exports rose 26.2% in August compared with the same month a year earlier.  This marks the sixth straight month of double digit growth as strong demand for chip-making equipment offset slowing US and European Union bound shipments of cars.  Data showed that shipments to China, which is Japan’s largest trading partner rose 12.6% year on year in August led by chemicals and semiconductor parts.  Meanwhile exports to the US, the world’s top economy, soared 22.8%,shipments to Asia as a whole gained 26.1% their slowest pace in five months and those to the European Union advanced 29.9% in August.  Meanwhile, imports increased by 44.7% in August compared with the same month a year earlier due to stronger demand for fuel and medical goods.  That brought a trade deficit of Yen 635.4 billion, the largest shortfall since December 2012. 

China’s Factory and Retail Sectors

China’s factory and retail sectors stumbled with output and sales growth hitting one-year lows amid fresh outbreaks of coronavirus cases and the supply disruptions that threated the country’s impressive economic recovery.  Industrial production increased 5.3% in August from a year earlier, dropping from an increase of 6.4% in July and marking the weakest pace since July 2020, data from the National Bureau of Statistics showed on Wednesday.  Consumer spending was also impacted by the rising COVID-19 cases.  Sales increased only 2.5% in August from a year ago.  Whilst China’s economy has made a strong recovery from last year’s coronavirus slump, momentum has slowed over the past few months due to supply bottle chain bottlenecks, semiconductor shortages, curbs on high polluting industries and a crackdown on property investment.  Meanwhile in the industrial sector production curbs hit output of aluminium and steel, while a drastic cut in fuel export quotas impacted China’s crude oil throughput.  China’s services activity slumped into contraction in August, a private sector survey showed, as restrictions to curb COVID-19 once again closed shopping malls and many businesses in parts of the country. 

Market Wrap

European stocks ended higher for the first time in five days on Monday as oil, banks and utility shares gained on hopes that a strong eurozone economic recovery would outweigh risks from a global slowdown.  Economy sensitive sectors including banks, oil, gas, construction and materials rose between 0.9% and 2.8% while utilities climbed 1.6%.  

Eurozone bond yields traded near two-month highs on Tuesday with the focus on US inflation data to be released later in the day.  European stocks slipped in early deals on Tuesday as caution ahead of the US inflation data and weakness in luxury and mining shares offset optimism around the region’s economic recovery.   London’s FTSE 100 slipped on Tuesday dragged by heavy weight metals and banking stocks.   Japan’s Nikkei closed at more than 31 year high on Tuesday led by cyclical stocks tracking overnight Wall Street gains.  The Nikkei share average ended up 0.73% at 30,670.10 its highest since August 1990.  The Dow Jones Industrial Average closed at 34,577.57 lower by 0.84%, the NASDAQ 100 and the S&P 500 closed lower by 0.33% at 15,382.9 and 0.57% at 4,443.05 respectively.

European shares slipped on Wednesday amid worries about the slowing Chinese economy, the declines in travel and leisure stocks and soaring UK inflation that dampened sentiment in early trading.  Travel and leisure stocks were the top decliners in Europe.  Eurozone government bond yields edged higher on Wednesday tracking the move in US Treasuries after dropping the day before on weaker than expected US inflation data. US borrowing costs rose in early London trade, with the 10-year Treasury yield up 1 basis point to 1.29% after dropping more than 6 bp on Tuesday as data showed consumer prices increased at their slowest pace in six months.  Meanwhile Germany’s 10-year government bond yield rose 1 basis point to -0.331%.  Asian stocks tumbled after data showed China’s factory and retail sectors faltered in August following the resurgence of coronavirus outbreaks and supply disruptions. 

China’s stock benchmark dropped over 1% on Thursday, with property and banking stocks leading the slide amid fears that debt-ridden developer China Evergrande Group’s financial troubles would trigger a broad contagion. UK shares edged higher on Thursday lifted by industrials and financial stocks.  Aero and defence stocks and life insurers added 1.3% and 0.7% respectively.  European stocks rose on Thursday as a rebound in travel stocks and the overnight strength in Wall Street helped to offset the concerns about China’s slowing economy that dragged down miners.  Travel and leisure added 1.6% while automakers rose 1.2%.  Utilities .SX6P climbed 0.2% still under pressure amid concerns over measures to reduce energy bills in Spain and elsewhere. 

Currency Roundup

US Dollar

The Dollar steadied below a 2 ½ week high that was reached in the previous session as investors braced for inflation data that might indicate the actions of the Federal Reserve at next week’s meeting.  Against a basket of its rivals the dollar index steadied at 92.59 having retreated from 92.887 which hit on Monday.  The dollar traded within recent ranges against major peers on Wednesday after softer than expected US inflation raised doubts about a taper of Federal Reserve stimulus this year.  Against the yen the dollar slipped slightly to Yen 109.595 keeping close to the centre of the trading range of the past two months.  The dollar traded near the middle of its range of the past month versus major peers on Thursday, as traders looked to next week’s Federal Reserve policy meeting for any indications on how the central bank will start to taper stimulus.  The dollar gained 0.1% to 109.28 yen after sliding to a six week low of 109.110 in the previous session. 

EURO

Tuesday saw the euro changing hands at $1.1815 after having bounced back from Monday’s low of $1.17705, its lowest since 27 August. On Wednesday the euro traded at $1.1808 mostly flat from the previous session.  Thursday saw the euro lower at $1.1786 consolidating between the month’s high and low of $1.1909 and $1.17705. 

Sterling

Sterling steadied in the afternoon trading on Monday after hitting a one-week high against the dollar on Friday as investors waited for more data to assess the situation after post-lockdown economic recovery and how soon interest rates could hike.  The direction of travel drifted during the session with the British currency briefly dropping below $1.38 then making gains against the dollar.  Against the dollar sterling was up 0.06% at $1.3839 and was also rising 0.13% against the euro at 85.25 pence.  It hit its highest in over three weeks against the euro at 0.8508 pence a level unseen since 19 August. 

AUD

Currency markets were in a quiet mood in early Tuesday trading.  The only source of excitement in the currency markets came about from the Australian dollar.  The currency  fell to a two week low after the head of the country’s central  bank dismissed market pricing of rate hikes in 2022 and 2023.  The Aussie extended its losses to more than 0.5% dropping to $0.7336 as the Reserve Bank of Australia (RBA) Governor Philip Lowe gave a dovish policy outlook with no rate increase on the horizon until 2024.   

Gold

Gold prices were little changed on Tuesday as investors awaited key US inflation data that could indicate the FED’s decision on taper stimulus measures.  Spot gold inched 0.1% lower to $1,792.31 per ounce, whilst US gold futures were flat at $1,793.60.  Higher treasury yields result into higher opportunity cost for holding non-interest bearing bullion. Gold prices eased on Thursday amid a firmer dollar that dented the gold’s attractiveness for holders of other currencies.  Spot gold was down 0.4% at $1,785.13 per ounce while US gold futures fell 0.4% to $1,787.40.  Indicating sentiment are the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, that dropped 0.2% to 998.46 tonnes on Wednesday. 

Oil

Oil prices rose to a six week high on Monday as US output remains slow to recover after Hurricane Ida slammed into the Gulf Coast and worries of another storm could impact output in Texas this week.  The increase in prices came along even though OPEC trimmed its world oil demand forecast for the last quarter of 2021 due to the Delta variant.  Brent futures increased by 0.8% to settle at $73.51 a barrel while US West Texas Intermediate crude rose 1.1% to settle at $70.45.  These was the Brent’s highest close since 30 July and WTI’s highest close since 3 August.  Other factors weighing on Monday’s oil price gains are rising US Shale output, the potential supply increases from planned releases of oil strategic reserves in the US and China, and the possibility of Iran could be closer to selling oil to the world again. According to the Energy Information Administration’s monthly drilling productivity report US oil output from seven major shale formations is expected to rise by about 66,000 bpd in October to 8.1 million bpd the highest since April 2020.  Oil prices ended largely unchanged on Tuesday as Nicholas the tropical storm brought heavy rain and power outages in Texas.  Brent crude settled up at $73.6 a barrel after hitting a session high of $74.28.  US West Texas Intermediate (WTI) crude settled up at $70.46 after touching a high of $71.22. Meanwhile, on Wednesday oil prices climbed after industry data showed a larger than expected drawdown in crude oil stocks in the US which is the largest oil consumer and on expectations that demand will recover amid the vaccine roll-out. Oil held above $75 a barrel on Thursday supported by a big drop in US crude inventories and surging European natural gas prices.  Oil is finding support from a surge in European power prices, which have increased amid low gas inventories and lower than normal gas supply from Russia. 

Malta: Inbound Tourism

During the month of July a total of 105,942 inbound tourists visited Malta for holiday purposes, followed by 5,099 tourists for business purposes.  Total tourist expenditure reached nearly Eur 126.5  million. The average expenditure per night was estimated at EUR 113.  Meanwhile, inbound tourists for the first seven months of 2021 amounted to 260,998 a decrease of 37.7 % over the same period in 2020.  Total tourism expenditure was estimated at EUR 246.9 million, a decrease of 4.5% when compared to the same period in the previous year.  Total expenditure per capita stood at EUR 946, increasing from EUR 617 in the same period in 2020, mainly as a result of longer length of stays. 

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