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BOV Market Watch - Week ending 11th December 2020
11 Dec 2020

ECB extends PEPP, downgrades 2021 growth forecast. Christine Lagard, President of the European Central Bank (ECB) announced an extension to the Pandemic Emergency Purchase Programme (PEPP) by €500 billion until at least the end of March 2022 amidst other monetary stimulus measures. The ECB warned that economic uncertainty remained high in the bloc owing to pandemic dynamics and the vaccine rollout. The central bank also cut its 2021 economic growth forecast for the Eurozone to 3.9 percent from 5 percent previously. It however upgraded its 2022 forecast up to 4.2 percent from 3.2 percent. The announcement coincides with the continued fall in yields of European sovereign debt. Several countries’ 10-year yields reach new all-time lows, including Italian, Spanish, Portuguese and Greek 10-year government bond yields.

Economic sentiment improves in the Eurozone. The Eurozone Indicator of Economic Sentiment released by the German economic research institute ZEW rose to a 3-month high of 54.4 in December 2020, a 21.6 point increase from the previous reading. The increase is being attributed to optimism surrounding the development of the Covid-19 vaccine. Only 12.1 percent of analysts surveyed expected economic activity to deteriorate, compared to 21.4 percent who did not expect any material change and the 66.5 percent of economic analysts who expected activity to improve. Inflation expectations also rose to 40.7 from 22.6 along with analysts’ assessment of the current economic situation in the Eurozone, rising marginally by 0.7 points to a still-negative -75.7.

US labour data has been mixed this week. US job openings for October increased to 6.65 million, in contrast to market expectations of 6.3 million openings. Despite the increase, the figure remains below the pre-pandemic figure of 7 million job openings. Nonfarm business sector labour productivity meanwhile also rose on a quarterly basis – however the 4.6 percent increase (annualised) fell below the 4.9 percent preliminary estimate and represented a moderation from the 10.6 increase registered in Q2. Manufacturing labour registered the largest Q3 increase – a 19.9 percent rise in the annualised rate. Business labour productivity meanwhile rose by 4.0 percent as 3.4 percent contraction in output was outpaced by an even faster 7.1 percent decline in total hours worked.

Brexit talks continue amidst the British economy’s continued recovery. Efforts to produce a Brexit deal during a meeting between EU Commission President Ursula von der Leyen and Prime Minister Boris Johnson failed on Wednesday. Both political leaders tentatively agreed to attempt and reach an agreement by the weekend. Investors continued to follow developments on Brexit trade talks closely. Despite tension surrounding Brexit talks, GDP data for Britain indicated a strong quarterly growth rate with the economy growing by 10.2 percent over Q3 following a 15.5 percent growth rate registered over the previous quarter. Accommodation and food services experienced the largest rebound, with activity in the sector soaring 187.2 percent. Construction and recreation (including arts and entertainment) also experienced above-average increases of 24.9 percent and 21.4 percent respectively.

Prices of consumer goods fell in China for the first time since October 2009. Despite market expectations for the consumer price index to remain unchanged, the index registered a marginal deflation of 0.5 percent year-on-year in November of 2020 after rising 0.5 percent in October. The fall in prices deflation is being attributed to food prices falling -2 percent, transport costs falling -3.9 percent as well as drops in the prices of other consumption spending goods such as utilities, fuel, rent and clothing. Prices for other goods, including healthcare and education experienced mild inflation ranging between 1 and 2.5 percent.

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).