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BOV Market Watch - Week ending 8th April 2022
08 Apr 2022

US yield curve inversion signals possible recession. A closely watched feature of the US Treasury yield curve inverted last Tuesday sparking concerns that the world’s largest economy is set to fall into recession. The two-year US Treasury yield briefly rose above the benchmark ten-year yield for the first time since September 2019, inverting a portion of the yield curve. Inversions are closely monitored by Wall Street and policymakers as they typically signal malaise about the economy’s long-term growth prospects and have preceded every US recession in the past 50 years. Short-term yields rose lately as the Federal Reserve started to tighten monetary policy in an attempt to tame inflation, which has soared to its highest level in four decades. Policymakers have signalled that they are ready to raise interest rates, possibly as many as six in 2022.

Eurozone investor morale falls to lowest level since July 2020. Eurozone investor sentiment fell to the lowest point since July 2020 with the current conditions index falling from 7.8 in March to -5.5 in April, the lowest level in a year, the behavioural research institute Sentix said. At the same time, the expectations measure dived from -20.8 in March to -29.8 in April, the lowest reading since December 2011. Recession fears are the main cause of falling investor confidence, as the Russian invasion of Ukraine and the related sanctions are magnifying the underlying weakness in the eurozone economy. “Investors do not expect that the European Central Bank will rush to the rescue with a more relaxed, more expansive monetary policy because of the still considerable pace of inflation growth”, Sentix notes.

German industrial production rises in February, but good news may not last long. German industrial production rose in February, despite supply-chain constraints. In calendar-adjusted terms, total industrial output (which includes production in manufacturing, energy and construction) rose by 0.2 percent in February compared with the previous month, statistics office Destatis said on Thursday. Economists had forecast a 0.2 percent increase. On an annual basis, industrial output increased by 3.2 percent in February, but was down by 3.8 percent compared with February's 2020 reading, before restrictions were imposed due to the Covid-19 pandemic, Destatis said. The Economy Ministry said that the production gap caused by shortages, making it difficult to fill orders, was unlikely to be closed any time soon due to the uncertainty caused by the war.

China services sector contracts on tight Covid restrictions. China’s services sector posted its steepest decline since the start of the pandemic as the local surge in coronavirus cases restricted mobility and weighed on client demand, a private sector survey showed on Wednesday. The Caixin services purchasing managers’ index (PMI) plummeted to 42 in March from 50.2 in February, dropping below the 50 level that separates growth from contraction on a monthly basis. The Caixin survey, which focuses more on small firms in coastal regions, tallied with the gauge of an official survey, which also showed a deterioration in the services sector. The report also highlighted a stronger rise in input costs faced by services companies. The rate of inflation was solid overall and quicker than average.

India’s central bank leaves interest rates unchanged. Taking a different path from its peers in the Western world, the Reserve Bank of India on Friday kept the repo rate unchanged at four percent for the 11th time in a row. At the same time, the central bank raised India’s inflation forecast for this fiscal year to 5.7 percent, from 4.5 percent, citing rising commodity prices and a spill-over into manufactured products, but said prices of key food items may be moderate due to fresh crop arrivals. Meanwhile, the bank cut its economic growth forecast to 7.2 percent, from 7.8 percent, as supply disruptions lessen output and high prices dent demand.

 

 

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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).