“US Jobs Beat Expectations…”

US Jobs Beat Expectations

Nonfarm payrolls increased by 4.8 million jobs in June, according to the Labour Department’s closely watched monthly employment on Thursday.  Economists polled by Reuters had forecast payrolls increasing by 3 million jobs in June.   This is the most since the government started keeping records in 1939.  Meanwhile in May, payrolls rebounded 2.699 million.  The unemployment rate fell to 11.1 percent last month from 13.3 percent in May.  Economists have attributed the burst in the job gains to the government’s Paycheck Protection Program, which gives businesses loans that can be partially forgiven if used for wages.   

Minutes of the FED

Minutes from the Federal Reserve’s June policy meeting showed that policymakers broadly agreed to make full use of the tools that are at the disposal of the central bank to support a recovery from the recession that was triggered by the coronavirus pandemic.  Policymakers “generally indicated support” for tying rate-setting policy to specific economic outcomes, minutes from the US central bank’s 9-10 policy meeting showed on Wednesday.  Some of them were in favour of a promise to leave rates low until inflation meets or even modestly exceeds the Fed’s 2 percent goal.  A couple of policymakers preferred tying changes to a specific date in the future.  The latter is an approach the FED used effectively in 2012 and 2013.  Policymakers overall were in favour of giving the public more explicit forward guidance about both the rates and bond repurchases, “as more information about the trajectory of the economy becomes available.”  Meanwhile there was much less support to alternate forms of support including control of the yield curve, a strategy in use by other central banks around the world.  In view that US officials are anticipating the worst economic downturn since World War Two, they have no intention of giving up on providing stimulus for the foreseeable future. 

China passes National Security Law

On Tuesday China’s parliament passed national security legislation for Hong Kong.  This leads the way for the most radical changes to the former British colony’s way of life since it returned to Chinese rule 23 years ago.  The details of the law that came along with last year’s often-violent protests in the city aims to tackle subversion, terrorism, separatism and collusion with foreign forces were yet to be released.  Meanwhile, the United States which is already in dispute with China over trade, the South China Sea and the coronavirus started eliminating Hong Kong’s special status under US law on Monday, halting defence exports and restricting technology access.  China said it will retaliate.  Authorities in Beijing and Hong Kong have repeatedly said that legislation is aimed at a few “troublemakers” and will not affect the rights and freedoms, and neither investor interests. 

UK Economy shows The Biggest Drop in 40 years

The UK economy dropped by most since 1979 in early 2020 as households slashed their spending according to official data that included the first few days of the coronavirus lockdown.  Gross domestic product dropped by a quarterly 2.2 percent between January and March, said the Office for National Statistics.  On Tuesday Prime Minister Boris Johnson set out plans to try and support the UK economy by promising to fast-track 5 billion pounds of infrastructure investment.  In his speech, Johnson set out a vision where the government could cut through red tape to speed up construction and infrastructure projects and kick-start the economy to “level up” wealth and opportunity in Britain. 

Currency Roundup

A firm dollar kept riskier currencies under pressure on Monday, as a surge in coronavirus cases and the imposition of curbs to stop its spread worried investors.  On Tuesday sterling retreated against a firmer dollar as investors awaited confirmation of the government’s spending plans to lift an economy that posted its biggest contraction in 40 years in early 2020.  Sterling is under pressure over fears that Britain will fail to reach a deal with the EU by the end of 2020 deadline.  Tuesday is the last day it can request an extension to the transition period, but it has refused to do so.  The Euro lost further ground against the dollar in morning trading after underlying price pressures again in the eurozone, underscoring fears that consumer price growth will remain like this for years.  Markets have remained torn between some positive economic developments, a rebound in factory activity in China and a resurgent pandemic.  Meanwhile, the safe-haven Swiss franc slipped marginally.  The dollar climbed 0.1 percent against the franc to 0.9506 while it also climbed against the Japanese yen.  The latter is also considered a safe store of value and was up 0.1 percent to 107.73 yen.  On Wednesday the dollar held steady against the euro ahead of data that was expected to show US manufacturing activity and continued hiring.  The euro traded within a narrow range as traders were awaiting data on German’s manufacturing sector, retail sales, and the jobless rate to gauge the health of the eurozone economy.  The yen held firm amid safe-haven flows as a top government spokesman said Japan could re-impose a state of emergency due to the coronavirus.  The euro held steady at $1.223 whilst against the pound the common currency traded at 90.77 pence after an 0.9 percent decline on Tuesday.  The yen edged higher to 107.63 per dollar pulling back from a three-week low and barely reacted after the Bank of Japan showed that business sentiment dropped to an 11-year low.  Sterling stood at $1.2367 giving up some of the previous day’s gains due to worries about Britain’s trade negotiations with the EU.  On Thursday the US Dollar slipped to a one-week low against its rivals amid an upbeat of US and European economic data that impacted risk appetite and sentiment was raised by the news of the COVID-19 vaccine breakthrough.   US manufacturing activity also rebounded more than expected in June, with the Institute for Supply Management’s manufacturing activity index hitting its highest in 14 months.  Similar surveys from China, Germany and France all point to an improvement in factory activity.  The positive risk sentiment boosted other risk-oriented currencies such as the New Zealand Dollar and the Euro with the latter having advanced 0.1 percent to $1.1264.  The positive sentiment lifted sterling above $1.25 for the first time in a week.   

US Senate Voted to Extend a $660 billion Lending Program

The US Senate unanimously voted on Tuesday to extend a $660 billion lending program in an effort to help small businesses that have been hardly it by the coronavirus pandemic.  The measure was passed unanimously in the Senate where lawmakers have been at odds over what additional steps are needed to aid people, businesses and local governments to cope with the coronavirus pandemic.  Jerome Powell, the Federal Reserve Chair told lawmakers that a full economic recovery is unlikely until people feel safe.  Although Congress has signed on roughly $3 trillion aid so far, Powell and other FED policymakers stated that more will be needed. 

Oil

Oil prices on Monday rose about $1 a barrel after bullish data from Asia and Europe, however, investors are worried about the sharp increase in new coronavirus infections globally.  Brent crude increased by 1.7 percent to settle at $41.71 a barrel, while US crude rose $1.21 or 3.1 percent to settle at $39.70 a barrel.  On Monday the European Commission showed that the recovery of economic sentiment in the eurozone intensified in June with improvements in all sectors.  Overall sentiment increased to 75.7 points in June from 67.5 in May.   Meanwhile the Organisation of the Petroleum Exporting Countries and allies, known as OPEC+ extended its 9.7 million barrels-per-day (bpd) supply cut agreement in July.  Oil prices rose on Wednesday amid a string of positive manufacturing data and a drawdown in US crude inventories, both indicating an economic recovery. Meanwhile, fears of new coronavirus infections capped the gains.  Brent crude increased by 0.3 percent to $41.4 a barrel and US crude was up 0.4 percent at $39.41 a barrel.  Data released by the American Petroleum Institute (API) late on Tuesday showed US crude and gasoline stocks dropped more than expected last week, while distillate inventories rose. 

China’s Factory Activity

China’s factory activity expanded at a stronger pace in June after the government lifted lockdowns and boosted investment, however persistent weakness in export orders suggests the coronavirus crisis will persist for some time.  The National Bureau of Statistics (NBS) data showed on Tuesday that in June the official manufacturing Purchasing Manager’s Index (PMI) came in at 50.9 compared with 50.6 in May.  The 50-point mark separates expansion from contraction on a monthly basis.  The increase occurred as a result of the fast pace of expansion in production.  The forward total new orders gauge also increased from 50.9 in May to 51.4 suggesting a pick-up in domestic demand as industries from general equipment to electrical machinery improved.  Export orders continued to contract although at a slower pace, with a sub-index standing at 42.6 compared to 35.3 in May well below the 50 mark.  Although the government engaged in measures to support smaller companies, the PMI survey showed activity in these firms contracting last month. 

Market Wrap

European shares ended a volatile session higher on Monday following strong gains on Wall Street and a rally in cyclical stocks amid improved data that lifted the hopes of a faster economic recovery.  After trading flat earlier in the session, the pan-European STOXX 600 index climbed 0.4 percent whilst the eurozone blue-chip stocks jumped 0.9 percent.  Eurozone banks were the biggest gainers, up 3.2 percent after data showed a recovery of economic sentiment in the EU that increased in June.  Meanwhile, on Wall Street, talks of more stimulus helped investors to look past a spike in the global death toll from the coronavirus infections.  Other growth sectors that led the gains in Europe where oil and gas, industrial companies, and automakers.  European stocks have outperformed their US counterparts in June amid their success in reopening the economy and the European Union’s proposed EUR 750 billion recovery fund.  European shares were mainly flat on Tuesday as investors booked some profits after a strong quarterly rebound.  Meanwhile, improving China factory data and hopes of more US stimulus cheered up sentiment in Asia.  The German DAX, which is trade sensitive rose 0.2 percent after data showed that China’s factory activity expanded at a stronger pace in June as lockdowns were lifted and investment stepped up. The three major indices S&P 500, Dow Jones and the NASDAQ Composite headed towards double-digit percentage gains for the second quarter subsequent to a surge from March’s lows.  The NASDAQ moved towards a 28 percent second-quarter gain, whilst the DOW and the S&P 500 were set to post gains of more than 16 percent and 18 percent respectively.   On Tuesday, Italian yields fell to their lowest since March amid trader’s perception that the stimulus from the European Central Bank was adequate protection against a second wave of infections.  The 10-year Italian bond yield was down 5 basis points to as low as 1.308 percent, its lowest since 27 March.  The yield for the 30-year bond also dropped to its lowest since March and the short-dated bond yields were close to the three-months lows.  As Italy is highly indebted, Italian yields tend to rise when there are increased concerns about the eurozone.  The drop in Italian borrowing costs reflect increased confidence that policymaker initiatives will help the region to recover.   Meanwhile US Treasury yields headed lower on Tuesday as investors were cautious over a continued increase in the coronavirus cases that could impact the hopes of an economic rebound.  The benchmark 10-year yield was last down 1.4 basis points at 0.6217 percent, while the yield on the five-year note, that hit a record low of 0.266 percent earlier in the session dropped 1.4 basis points at 0.2673 percent.  Also, on Tuesday worries over the coronavirus and the tensions between the US and China weighed on sentiment.  The S&P 500 has rebounded about 18 percent since April amid fiscal and monetary policy stimulus and the easing of restrictions.  On Wednesday US stocks closed higher amid the increasing optimism for a safe and effective COVID-19 vaccine that eased the worries that another round of business lockdown was likely despite a climb in coronavirus cases in the US.  The shares of Pfizer Inc’s shares rose more than 4 percent after the drugmaker said that the COVID-19 vaccine being developed with German firm BioNTech was promising and was found to be well-tolerated in the early-stage of human trials. Updates on the progress related to various COVID-19 vaccine programs are being closely watched by investors and partly affected the increase on Wall Street.  Meanwhile, investors were also encouraged by some upbeat economic data as coronavirus-induced lockdowns have eased. According to a report on Wednesday a slump in global manufacturing had declined in June, with U.S. figures hitting their highest level in more than a year.  The ADP National Employment Report on Wednesday showed U.S. private payrolls increased by 2.369 million jobs, but still less than expected in June.  On Thursday all eyes were on the Labour Department’s nonfarm payrolls report.  Meanwhile, the Institute for Supply Management (ISM) said its index of national factory activity jumped to a reading of 52.6 last month from 43.1 in May, ending three straight months of contraction, or readings below 50.  

Malta:  The effect of the COVID-19 on the Labour Market:  A comparison between March and April 2020

The Labour Force Survey is a household-based survey that monitors and assess the progress made in various spheres of the labour market and social statistics across the EU.  During the month of April, 62 percent of persons who had a job felt that their job was affected by the COVID-19.  A major change experienced by the employed is a reduction in the number of working hours or complete absence from work (31 percent).  Meanwhile, during April, the employed worked an average of 29 hours per week, down by eight hours when compared to the average actual weekly hours in 2019.  The implementation of a number of health measures resulted in 39 percent working less hours than usual.  For 7 percent of the employed, COVID-19 materialised in more hours of work, an average of 48 hours per week during the month of April.  Meanwhile, over one third of those employed in April were working from home. 

Malta:  Unemployment rate in May 2020

The seasonally adjusted monthly unemployment rate for May 2020 reached 4.2 percent, an increase of 0.1 percent from the previous month and up from 3.4 percent when compared to May 2019.  During May 2020, the seasonally adjusted number of unemployed persons was 11,423 with the unemployed males at the 25 to 74 age group being the main contributors to the overall level of unemployment.   In May 2020, the seasonally adjusted unemployment rate for males was 3.9 percent at par with the previous month.  The rate for females stood at 4.7 percent, an increase of 0.3 percentage points when compared to April 2020. 

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

July 3rd, 2020


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