“US President to push Trillions in Investments…”

US President Joe Biden proposed a $1.8 trillion package for families and education in his first joint speech to Congress on Wednesday.  He stressed the need to invest to compete with China, said the White House. The new package together with an earlier infrastructure and jobs plan, totals around $4 trillion. This is a once in a generation investment vital to America’s future.  According to a White House fact sheet, the plan includes $1 trillion in spending on education and childcare over 10 years and $800 billion in tax credits aimed at middle- and low-income families.  To pay for the plans Biden has proposed an overhaul of the US Tax System.  Wednesday’s “American Families Plan” is funded by raising the top marginal tax rate to 39.6% for the wealthiest Americans.  This nearly doubles the tax on investment income known as capital gains for Americans who earn more than $1 million., which is planned to fund the proposed infrastructure plan.  According to the Biden administration the tax reform plan is designed to reward work , not wealth and “reform the tax code so that the wealthy have to play by the same rules as everyone else”.  In addition to police reform, Biden shall discuss foreign affairs, the handling by his administration of the coronavirus pandemic and the status of vaccinations. 

FED Meeting

The Federal Reserve held the interest rates and its bond-buying program steady on Wednesday, after its two-day policy meeting despite a rosier view of the US economic recovery.  FED Chair Jerome Powell said that the coming price increases would almost surely be of a passing nature and will not present the sort of persistent problem that would force the Central Bank to begin raising interest rates sooner than expected. Gold tends to benefit from widespread stimulus measures from Central Banks as it is viewed as a hedge against inflation. 

US Economy in First Quarter

On Thursday, the Commerce Department reported the second-fastest growth in Gross Domestic Product since the third quarter of 2003.  Output was left just 0.9% below its level at the end of 2019.  The report is a boost for President Joe Biden who celebrated his 100 days in the White House.  GDP increased at a 6.4% annualised rate as at the previous quarter, the Government announced in advance of the estimate for Q1 2021.  This followed a 4.3% growth rate in the fourth quarter, which made it the biggest first-quarter increase in growth since 1984.  Consumer spending was the main driving force behind the growth, which increased at 10.7% rate as households bought motor vehicles, furniture, recreational goods, and electronics.   Consumer spending which accounts for more than two thirds of US economic activity grew at 2.3% pace in the fourth quarter.  The economy is rebounding faster compared to other global rivals thanks to two additional rounds of COVID-19 relief money from Washington as well as easing anxiety over the pandemic, that boosted domestic demand and allowed services businesses such as restaurants and bars to reopen.  Americans have accumulated at least $2 trillion in excess savings and many economists are expecting the economy to fully recover from the recession in late 2023.  They expect growth this year to top 7% which would be the fastest since 1984.  The economy contracted 3.5% in 2020 its worst performance in 74 years. 

Eurozone GDP

The eurozone economy shrank less than expected in the first three months of the year according to preliminary data on Friday while headline inflation picked up as expected due to a surge in energy prices. Eurostat said that Gross Domestic Product in the 19 countries sharing the euro, contracted 0.6% quarter on quarter for a 1.8% year-on-year fall.  This has put the euro area in a technical recession after a 0.7% quarterly GDP drop in the last quarter of 2020.  The first quarter contraction of the Eurozone was mainly caused by a 1.7% quarterly dump in Germany’s economy however, it was mitigated by an 0.4% quarterly growth in France.  On a separate note, Eurostat estimated that Eurozone’s consumer prices rose 0.6% month-on-month in April for a 1.6% year-on-year gain.  The rise was mainly caused by a 10.3% year-on-year surge in energy prices, that offsetted the 0.4% year-on-year drop in the costs of unprocessed food.  Without these two components prices rose 0.5% month-on month for a 0.8% year-on-year increase, a deceleration from the 1% year-on-year core inflation rate the month before.  The core inflation drop reinforces the calls from the European Central Bank to maintain the stimulus to the economy and hold off on tapering the pandemic bond purchases until the growth rebound fully takes place.  Eurostat further added that the Eurozone’s unemployment fell in March to 8.1%, 13.166 million people from a downwardly revised 8.2% in February or 13.375 million people. 

Germany’s Business Morale

German business morale improved by less than expected in April as a third wave of COVID-19 infections and problems with supply of components in the industrial sector seemed to slow the country’s recovery.  The IFO Institute said its business climate index edged up to 96.8 from 96.6 in March.  Germany is struggling to contain an aggressive third wave of COVID-19 as efforts have been complicated by the more contagious B117 variant, which was first discovered in Britain and the relatively slow introduction of vaccines against the pandemic.  The business climate in manufacturing improved further to reach its highest level in nearly three years, with industrial companies reporting full order books and humming factories.  The business outlook was less optimistic at 455 of companies reporting bottlenecks in intermediate products, the highest such figure since 1991, said IFO.  Germany’s big car makers are struggling to ramp up production amid a global shortage of semiconductors which has exposed the sector’s dependency on a few Asian suppliers, and its vulnerability to any interruptions to supply from them. 

German Government Lifts its Growth Forecast

The German Government raised the growth forecast to 3.5% from a previous estimate of 3% as it expects household spending to support the recovery once restrictions are lifted, said the Ministry of Economy on Tuesday.  The Government expects Growth Domestic Product for next year to grow by 3.6%, which would result in the economy to reach its pre-pandemic level in 2022 at the latest. 

EU Lawmakers Debate Brexit Accord before Decisive Vote

EU lawmakers debated the post-Brexit trade agreement between the EU and Britain for the last time on Tuesday ahead of a vote.  The European Parliament has overwhelmingly backed the post-Brexit trade deal between Britain and the European Union, clearing the last hurdle towards its ratification.  EU lawmakers cleared the trade and cooperation agreement (TCA) by 660 votes to 5, with 32 abstentions, as announced by the Parliament a day after the vote. The consent by Parliament ends more than four years of negotiations and debates as the UK ended 47 years of EU membership.  European Commission President Ursula von der Leyen said she warmly welcomed the vote. British Prime Minister Boris Johnson said this week was the final step in a long journey, providing stability to Britain’s new relationship with the EU. He said in a statement, “Now is the time to look forward to the future and to building a more global Britain”. 

China’s Factory Growth

China’s factory growth slowed and missed forecasts in April as supply bottlenecks and rising costs weighed on production and overseas demand lost momentum. The country’s official manufacturing purchasing managers’ index (PMI) fell to 51.1 from 51.9 in March, data from the national Bureau of Statistics (NBS) showed on Friday. It remained above the 50-point mark that separates growth from contraction on a monthly basis.  This contrasted with a private-sector survey also released on Friday which showed that factory activity in April expanded at the fastest pace in four months although businesses in that release also reported a sharp surge in input costs.  China’s economic recovery was faster in the first quarter of the year with record growth of 18.3% shaking off the hit from last year’s COVID 19 induced slump. 

Cryptocurrency Market

In the cryptocurrency market, Bitcoin reached again the $50,000 mark, climbing 10% and on course to snap the five straight days of losses exacerbated by US President Joe Biden’s plan to raise capital gains taxes for wealthy investors.

Currency Roundup

Monday saw the Dollar rising from an eight-week low against the Euro and gaining against major currencies such as the Yen and Swiss Franc. Investors consolidated their positions ahead of the Fed’s monetary policy meeting later in the week.  Since late March, the Dollar has dropped by nearly 3% as US Treasury Yields have risen this year, supporting the currency. Meanwhile, the Euro rose to a new two-month high against the Dollar on news about the German Business Sentiment that would bolster hopes for a brighter economic outlook.  In Emerging Markets, the Turkish Lira weakened to as much as TRY 8.48 against the Dollar, close to its record low of TRY 8.58 reached in early November.  The Lira is amongst the worst performers in Emerging Markets this year amid worsening relations with the US and worries about the Central Bank Policy. 

The Dollar moved higher on Wednesday amid the US Federal Reserve’s policy statement and by President Joe Biden’s speech. Meanwhile, the Euro slipped 0.2% to $1.207 off Monday’s two-month high of $1.2117.  The Dollar stood at ¥108.855 having jumped 0.59% overnight and extending its recovery from a seven-week low of ¥107.48 touched last week.    Most central European currencies dropped against the euro on Wednesday with Hungary’s Forint, Polish Zloty and the Czech Crown falling between 0.5% and 0.2%.

The Dollar traded just off nine-week lows on Thursday after a dovish outlook from the US Federal reserve and bold spending plans from the White House.  The push for another $1.8 trillion in spending also risked expanding the US budget and trade deficit.  The Euro made the most of the opportunity to hit its highest since late February at $1.2149 before steadying $1.2134.  The Pound rose in the early hours of trading having been boosted overnight by the FED’s dovish outlook that prompted a weaker Dollar.   The currency hit a nine-day high of $1.3979 in Asian trading after the US Federal Reserve said it was too early to consider rolling back its emergency support.  Against the Euro it was up around 0.2% to £0.86.  Investors are watching political developments in Britain as Prime Minister Boris Johnson is under pressure on accusations about how he responded to the COVID-19 pandemic and who paid for the refurbishment of his flat as well as inquiry into leaks of private information from his office.  

Oil

In its most recent monthly oil market report, OPEC raised its forecast for global oil demand growth by 70,000 barrels per day (BPD) to 5.95 million BPD.  Oil prices fell on Monday amid fears that rising COVID-19 infections in India will dent fuel demand in the world’s biggest oil importer.  India which has set a world record in daily COVID-19 cases, ordered its armed forces on Monday to help tackle surging new infections that overwhelmed hospitals.  OPEC+ ditched their plans to hold a Ministerial on Wednesday, four OPEC+ sources said, following Tuesday’s meeting of ministers who are members of a market monitoring panel.  The panel decided to stick to policies agreed at a previous meeting of OPEC+ held on the 1^st of April, said the Russian Deputy Prime minister after the talks.  At the April meeting the group agreed to bring 2.1 million BPD to the market from May to July, easing cuts to 5.8 million BPD.  Amongst oil UK majors, Royal Dutch Shell gained 1.4% after it raised its dividend by 4% following a strong quarter, while the French oil company, Total was up 1.2% after it reported first quarter earnings close to pre-pandemic levels. 

Market Roundup

European stocks ended higher on Monday amid strong metals prices that boosted miners, while a rise in bond yields supported shares of major banks on optimism that the worst of the COVID-19 pandemic has passed.  Meanwhile, losses in automakers countered gains in miners, while investors braced for a busy week of corporate earnings and economic data.   Basic resources stocks were among the best performers for the day, rising 1.9% to a 10-year closing high.  The sector was supported by Shanghai copper prices hitting 10-year highs, with prices of other metals also rising as vaccination programmes across major industrial hubs pointed to a recovery in demand.  Bank stocks were the top performers rising 2% as major lenders were supported by rising euro bond yields.  Travel and leisure stocks rose 1.8% to a record closing high after a top European Union official said Americans who have been vaccinated against COVID-19 should be able to travel to Europe by summer.  Germany’s stocks lagged their peers rising only 0.1% after the IFO Institute’s survey showed German business morale improved by less than expected in April due to a third wave of COVID-19 infections.  The S&P 500 and NASDAQ ended at record levels on Monday with tech-heavy NASDAQ completing a full recovery from its 11% correction that began in February. 

Shares eased from record peaks on Tuesday over optimism about a global economic recovery and caution before a policy decision by the Federal and earnings updates from a number of blue-chip companies.  Results from Tesla and 3M dragged Wall Street main indexes lower on Tuesday shifting investor focus to earnings from big technology companies that include Microsoft and Alphabet.  Electric-car maker Tesla Inc dropped 4% dragging down the S&P 500 and the NASDAQ.  Overall earnings for the S&P 500 companies are expected to jump 34.3% in the first quarter from a year earlier, according to Refinitiv IBES data.  European stocks were little changed on Tuesday after earnings from blue-chip companies such as HSBC and BP.  However, UBS was the latest bank to disclose it was hit from dealing with US investment firm Archegos.  UK’s FTSE 100 rose slightly as oil major BP jumped 2.6% after its first-quarter profit climbed due to stronger oil prices and excellent revenue from natural gas trading. 

European shares on Wednesday gave up gains as caution crept in ahead of the US FED policy decision however, strong results from Deutsche Bank and Lloyds Banking Group boosted earnings optimism.  Travel and Leisure stocks eased from all-time highs and miners retreated after a recent rally.  The banking sector was up 0.3% and insurers climbed 0.6%.  Earnings at European companies are expected to surge in the first quarter of 2021 by 71.3% from a year earlier, according to Refinitiv IBES data, up from last week’s forecast of a 61.2% jump.  The benchmark US Treasury Yield climbed to a two-week high.   The Dow and the NASDAQ opened lower on Wednesday after mixed earnings from big technology companies and downbeat Boeing results.  Meanwhile, investors hoped that the FED would stick to its promise to keep monetary policy loose.  The Dow Jones Industrial Average increased by 0.01%, the NASDAQ 100 dropped by 0.47% and the S&P 500 dipped by 0.02%.  Global stock markets took heart as the U.S. Central Bank Chair Jerome Powell said “it is not time yet” to begin discussing any change in monetary policy with so many workers still left jobless by the pandemic. Nasdaq futures jumped 1% on Thursday after outstanding result from Apple and Facebook powered by a rally in tech stocks.

European stocks ended lower on Thursday even though bank shares hit 14-month highs on strong quarterly earnings, as a rise in Eurozone bond yields saw investors locking in profits at near-record levels.  Bank stocks were the best performers for the day as Standard Chartered added to the strong earnings reports this week, including those from HSBC and Banco Santander.  The increase was also supported by a jump in Eurozone bond yields after US economic growth and German inflation data came in higher than expected. 

World stocks held near a record high amid strong economic data, robust corporate earnings, and the Federal Reserve commitment to support the economy fuelled by investor’s appetite for risk.  European stocks edged higher on Friday on strong corporate earnings that lifted investor sentiment ahead of the release of eurozone economic growth data for the first quarter. 

Malta:   Industrial Producer Price Indices – March 2021

In comparison to March 2020, the industrial Producer price index increased by 1.04%.  Intermediate goods, capital and consumer goods climbed by 2.3%, 0.51% and 0.09% respectively.    The energy sector experienced no change.  Meanwhile during March 2021, the industrial producer price index increased by 0.6% when compared to February 2021.   Intermediate goods, capital goods and consumer goods went up by 1.33%, 0.2% and 0.08% respectively.  There was no price change in the energy sector. 

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