“Federal Reserve Meeting…”

Federal Reserve Meeting

As the Federal Reserve met for its two-day meeting global markets shifted their attention for clues on the monetary policy outlook after the world’s largest economy adopted a more accommodative approach to inflation.  The meeting was the first since its shift in August to a more inflation tolerant stance.  On Wednesday the Federal Reserve kept interest rates near zero and made a bold new promise to remain there until inflation is on track to “moderately exceed” the US central bank’s 2% inflation target “for some time”.   This new guidance marks a monetary policy shift, that was announced last month by the FED that is aimed to offset years of weak inflation and allow the economy to keep adding jobs for as long as possible.  Following the release of the central bank’s latest policy statement and economic projections Fed Chair Jerome Powell said, that, “effectively, what we are saying is that rates will remain highly accommodative until the economy is far along its recovery.”  He further noted that the recovery is ongoing but the pace is expected to slow, requiring continued support from the Fed further government spending. 

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits fell last week but remained at extremely high levels as the labour market recovery shifts in lower mode and consumer spending cools amid fading fiscal stimulus.  Initial claims for state unemployment benefits totalled a seasonally adjusted 860,000 for the week ended 12 September compared to 893,000 in the prior week said the Labour Department on Thursday.  According to FED Chair Jerome Powell more fiscal support was likely to be needed, adding that though the labour market has improved “substantially” it was “a long way from maximum employment.”

US Consumer Spending

US consumer spending slowed in August with a key retail sales gauge unexpectedly declining as extended unemployment benefits were cut for millions of Americans.  The report from the Commerce Department on Wednesday put up pressure on the White House and Congress to restart the stalled negotiations for another fiscal package.   Whilst consumer spending accounts for more than two-thirds of the US economy, at least 29.6 million people are on unemployment benefits.  Retail sales excluding automobiles, gasoline, building materials and food services dropped 0.1% last month after a downward revision of 0.9% increase in July.  Retail sales account for the goods component of consumer spending, with services such as healthcare, education, travel and hotel accommodation making up the other portion.  Services have been heavily hit by the coronavirus that plunged the economy into recession in February, and spending on services remains about 10 % below the pre-pandemic level. 

European Union Chief Executive on Tougher Climate Target

The European Union’s chief executive on Wednesday said the block should commit to deeper emissions cuts over the next decade and pledged to use green bonds to finance its climate goals.  European Commission president Ursula von der Leyen said ambitious action to tackle climate change could create millions of extra jobs, aiding Europe’s economic recovery from the coronavirus pandemic.  She further added that the EU should set a target to cut its greenhouse gas emissions by at least 55 % by 2030 against 1990 levels.  The EU’s current 2030 emission target is for a 40 % cut.  Von der Leyen said the upgrade would put EU “firmly on track” for its plan to reach net zero emissions by 2050 and the Commission analysis had confirmed a 55 % emissions cut was economically possible.  She acknowledged that the increase from 40 to 55 would divide the European Parliament and member states who must approve the legally binding target but who disagree on how ambitious it should be.  Such a goal would require huge investment in transport, heavy industry and energy.  Von Der Leyen said that 30 % of the bloc’s 750 billion euro coronavirus recovery package of grants and loans, which the EU as a whole will borrow, should be raised through green bonds.  Meanwhile 37 % of this package should be marked for projects to help industries decarbonise by swapping coal for low-carbon hydrogen in industry or the installation of electric car charging points. 

Eurozone Banks get ECB relief

On Thursday the European Central Bank gave eurozone banks relief worth 73 billion euros from a key capital requirement.  This helps the banks to keep credit flowing amid the coronavirus pandemic.  The 115 banks that are directly supervised by the ECB will be allowed to exclude some of their exposure to the central banks, including deposits, from the calculation of their leverage ratio until next June.  The ECB said this exclusion would raise the aggregate leverage ratio of 5.36% by about 0.3 percentage points, which is about 73 billion euros based on the latest available data as of the end of March.  The ECB said, “The situation brought about by the coronavirus (COVID-19) pandemic has affected all euro area economies in an unprecedented and profound way.”  It further added that,  “the situation has resulted in an ongoing need for a high degree of monetary policy accomodation, which in turn requires the undeterred functioning of the bank-based transmission channel of monetary policy.”  The leverage ratio that requires banks to hold capital worth 3 % of their total exposure, will only become binding in July however banks are already required to disclose it.   

Germany

Investor sentiment in Germany rose unexpectedly in September according to the ZEW economic research institute, indicating confidence in a recovery from the coronavirus crisis despite a resurgence in coronavirus infections and a stall in Brexit talks.  The survey of investor’s economic sentiment climbed 77.4 from 71.5 points the previous month.  Meanwhile a separate gauge of current conditions rose to -66.2 from -81.3 points the previous month.  The German economy has been rebounding since May when lockdowns to slow the spread of the virus were lifted.  Activity, however, remains below pre-crisis levels and economists are expecting a slow recovery.  An economic rescue programme approved by Chancellor Angela Merkel’s conservatives and their Social Democrat (SPD) coalition partners is supporting the recovery.  The rescue programme includes lower value-added tax rates to encourage private spending and subsidies for companies to keep employees on the payroll and avoid mass layoffs. 

UK

The unemployment rate in the UK climbed, for the first time since lockdown began, to 4.1%. The government’s subsidy scheme has so far held off many redundancies, but the scheme is now coming to an end. The number of staff on company payrolls fell by 36,000 in August compared to 20,000 in July and 695,000 between March and August in total.

Covid Vaccine Trials

AstraZeneca resumed the Phase 3 British clinical trials of its COVID-19 vaccine, after suspending testing due to a reported illness in one of its patients. Pfizer Inc and BioNTech SE also proposed expanding their Phase 3 vaccine trial to 44,000 participants.

China

Rating Agency, Moody Investors Service, confirmed its A1 local and foreign currency rating, stating the country’s strength in mitigating risk.  China’s industrial output accelerated the most in eight months in August, while retail sales grew for the first time this year, suggesting the economic recovery is gathering pace as demand starts to improve more broadly from the coronavirus crisis. After the pandemic paralysed the economy, China’s recovery has been gaining momentum as pent-up demand, government stimulus and surprisingly resilient exports propel a rebound. Floods across southwestern China that disrupted production in July have receded. Industrial output growth quickened to 5.6% in August from a year earlier, data from the National Statistics Bureau showed on Tuesday.  Retail sales also rose by 0.5%, ending a seven-month downturn. In July, sales dropped 1.1% but consumer confidence has picked up with spending on vehicles and duty-free shopping.  Auto sales rose 11.8% from the previous August while sales of telecom products jumped 25.1%. Private sector fixed-asset investment, which accounts for 60% of total investment, fell 2.8% in January-August, compared with a 5.7% decline in the first seven months. Property investment also jumped the most in 16 months. China also posted record output in both crude steel and aluminum last month thanks to demand from the construction sector and recovery in automobile sales. Data last week showed China’s August exports marking the strongest annual gain since March 2019, as more of its trading partners eased coronavirus lockdowns.

Market Wrap

The start of the week saw Wall Street’s major indices climbing as technology stocks regained momentum after two weeks of losses. US Treasury yields remained stable on Monday at 53 basis points, around a point lower than the previous Friday’s close but much higher than the 33 basis points of July 24. The 10-year yield was down at 0.6641% in the afternoon, close to the middle of the range where it has traded since late March. The two-year yield was up less than a basis point at 0.135%.  Europe’s STOXX 600 closed at a near three-week high on Tuesday amid robust industrial output data from China that boosted mining and luxury stocks. Meanwhile European stocks also struggled as banking shares declined ahead of the US and UK central bank meetings this week.   The retail index .SXRP rose 2.3 % leading sectoral gains in Europe.  Miners .SXPP rose after data showed industrial output in China, the world’s top metal consumer, accelerated the most in eight month in August, while retail sales grew for the first time this year. The FTSE 100 slipped on Wednesday amid fears of a disorderly exit for the UK from the European Union that kept risk sentiment subdued.  The blue-chip FTSE 100 and the mid-cap FTSE 250 were down 0.1 % and 0.2 % respectively, with the banking stocks and insurers among the biggest decliners.  Japanese stocks ended marginally higher on Wednesday on expectations that the US Federal Reserve would reinforce its commitment to keeping rates low at a meeting later in the day.  The Nikkei 225 index finished 0.09 % higher at 23,475.53 with the telecoms and healthcare sectors leading the gains.  Many investors remained at the sidelines ahead of the FED’s policy statement.    Equities pulled back on Thursday after a divided US FED dented stimulus hopes.  Meanwhile, traders shifted their focus to the Bank of Japan and Bank of England meetings however, the tone was set by the FED and the tech war.  Tech stocks dropped 1.6 % after US President Donald Trump had warned China’s ByteDance should not keep control of the US operations of social media platform Tiktok.   Banks, automakers, and miners were the biggest sectoral drops though, all dropping as much as 2 % whilst Volkswagen, Renault and PSA Group REUP. PA fell between 2.5% and 3% after industry data showed European car sales fell by 17.6 % in August.  After the release of the statement by the Federal Reserve on Wednesday, US stocks added to earlier gains before trending lower as Powell spoke, with the S&P 500 index last down 0.1% and the NASDAQ falling 0.8 %.  Wall Street main indices opened lower on Thursday after data showed high levels of weekly jobless claims.  Technology stocks continued with their downfall with Apple Inc and Amazon among the biggest drags on the NASDAQ.  Whilst the Dow Jones Industrial Average dropped 0.71 % at the open to 27,834.18, the S&P 500 opened lower 1.14 % at 3,346.86.  The NASDAQ Composite dropped 2.3 % to 10,796.05 at the start of the session. 

Currencies

The dollar index dropped to 92.910 on Monday against its major peers due to a wave of M&A deals. The dollar traded at 105.66 Japanese yen. The euro crept up for a fifth straight day by 0.2% to $1.1889. The Australian dollar gained 0.4% to $0.7316 as the central bank’s September monetary policy meeting gave no hint that record low interest rates will be cut further. The Chinese yuan rose to a 16-month high on Tuesday thanks to China’s robust economic fundamentals, helping to lift the MSCI emerging market currency index to a six-month high. The British pound bounced back to $1.2855 following a fall of 3.66% last week, after the UK government won an initial Parliamentary vote on its controversial bill to violate the Brexit deal with the European Union. Turkey’s lira reached new lows against the euro and the dollar due to tension with Greece over energy resources in the Mediterranean. Also, on Tuesday the dollar dropped to a two-week low against the yen amid expectations of the outcome of the meeting later in the week by the Federal Reserve. On Wednesday the yuan advanced after firm central bank guidance indicated an increasing tolerance for a stronger currency, however gains were pared as investors cut their exposures ahead of the FED policy meeting.  The sterling’s recovery against a weaker dollar was interrupted on Thursday when the dollar strengthened after the FED meeting and while investors turned their attention to the Bank of England’s policy meeting.  The dollar increased to its best daily rise in over a week against a basket of other top currencies and placed the euro back under $1.18. 

Oil

Oil prices dropped on Monday as Hurricane Sally disrupted U.S. production by 21.4%, or 395,790 barrels per day (bpd), the second time in less than a month that storms have forced energy firms in the Gulf of Mexico to close.  Brent crude LCOc1 settled, or 0.6%, at $39.61 a barrel while U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 0.2%, at $37.26 a barrel. Meanwhile OPEC is expecting world oil demand to fall more steeply in 2020 than previously forecast due to the coronavirus and recover more slowly than expected next year. The Organization of the Petroleum Exporting Countries said on Monday that world oil demand would tumble by 9.46 million bpd this year, more than predicted a month ago. In Libya, commander Khalifa Haftar committed to ending a months-long blockade of oil facilities, a move that would add more supplies to the market. On Thursday oil prices climbed more than 2 %, turning positive as OPEC and its allies said there will be stringent monitoring on countries that failed to comply with the output cuts and planned to hold an extraordinary meeting in October if oil markets weaken further.   

Gold

On Tuesday gold retreated and investors drove longer-term US Treasury yields higher.   Gold prices edged up on Wednesday on a weaker dollar, as investors awaited the outcome of the FED’s policy meeting for details about the US Central bank plans to balance interest rates against its inflation target.  Spot gold was up 0.2 % at $1,959.38 per ounce whilst US gold futures edged up 0.1 % to $1,968.20.  The rapid accumulation of gold by investors as the pandemic from the coronavirus hit in has threatened the record-breaking rally in prices of the precious metal.  Investors who seek safety in gold during troubled times have offset the drop in jewelry demand and helped push the prices above the $2,000 an ounce for the first time.  According to World Gold Council (WGC) holdings in the physically-backed Exchange Traded Funds (ETFs) have increased by 959 tonnes of gold worth $60 billion.  Meanwhile, in August and so far in September, ETF holding’s net inflows amounted to 39 and 21 tonnes respectively, said the WGC, coinciding with gold’s first two monthly price falls since March. 

Malta:  Registered Employment: January 2020

In a press release dated 15^th September administrative data provided by Jobsplus shows that labour supply (excluding part-timers) in January 2020 increased by 6.5 % reaching 231,016.  The main attributor to the year-on-year increase is in the full-time registered employment (14,178) and a decline in registered unemployment (105).  Comparing January 2020 to January 2019 the highest increase in employment was brought about by administrative and support service activities and construction with 2,804 and 2,051 respectively.  Meanwhile, registered full-time employment increased by 1,140 persons to 49,385.  Registered part-time employment in January 2020 went up by 6.3 % when compared to the same month in 2019.  The overall increase was generated by professional, scientific, technical activities, administrative and support service activities.   

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