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BOV Market Watch - Week ending 1st July 2022
01 Jul 2022
Eurozone Economic Confidence At 15-Month Low. The Eurozone economic confidence weakened to a 15-month low in June, the lowest since March 2021 showing the falling morale among construction managers, consumers and retailers. The index decreased from 105 in May  to 104.0 in June, but exceeding forecasts of 103. Increases in industrial and services confidence offset the above. The industrial sentiment index improved to 7.4 from 6.5, with the services confidence index also improving to 14.8 from 14.1 the previous month.  Simultaneously, the consumer confidence index dropped more than expected from -21.2 in May  to -23.6 in June.  Construction confidence fell plunging to 3.7 from 6.3, due to a  decline in the level of order books and a sharp decrease in employment expectations, also indicating that inflationary pressures  are persisting, and likely to weigh on demand and sentiment further ahead. In the meantime, the EU27 economic confidence index decreased by 1.7 points to 102.5 .

U.S. First Quarter Real GDP marginally revised downwards. The U.S. Commerce Department revised marginally downwards the first quarter  2022 real GDP adjusted to inflation to a 1.6 percent contraction  from the previously reported 1.5 percent.  GDP fell slightly by more than was estimated, as the increase in consumer spending during Q1 was revised downwards to 1.8 percent from 3.1 percent. The slightly higher than estimated decline in GDP in Q1 followed a  6.9 percent spike in GDP Q4 2021. This indicates a slowing US economic momentum. It was also reported that the notable negative revision to consumer spending growth was partly offset by an upward revision to private inventory investment. The decline  in GDP in Q1 showed decreases in exports, private inventory investment and government spending, whilst showing an increase in imports. Simultaneously, the fall was mitigated following increases in non-residential fixed investment, consumer spending and residential fixed investment.  Front-loaded rate hikes by the Fed  have increased  the possibility of a decline in  economic growth, which could lead to a recession.

Japan’s  industrial production records biggest fall in two years. In May, Japan’s Industrial production fell heavily by  -7.2 percent, notably worse than the expected -0.3 percent , the sharpest fall in the last two years.   Weakness in vehicle production contributed mostly with a -9 percent drop, the third consecutive month of decline, with general production remaining fragile. Japanese automakers supplies where highly disrupted by China’s lockdowns. Tech products  output also contracted substantially, whilst electrical machinery, which include batteries for e-vehicles and home appliances, tumbling by -6.7 percent .  Electronic equipment also fell by -11.4 percent.   Simultaneously, petroleum and chemical products rose by 7.6 percent in May following a 1.7 percent  gain in April supported by demand. The sharp decline in industrial production indicates that Japan’s Q2 GDP rebound should be limited, from the forecasted  0.3 percent growth, and the forecasted 2022 annual GDP estimated at  0.8 percent. This should be an indication that the Bank of Japan should not make any changes to the accommodative  monetary policy, anytime soon considering the weak economic environment.

UK Q1 GDP growth confirmed at 0.8%. UK gross domestic product increased by 0.8 percent, in the first quarter as initially estimated, from the fourth quarter. This was weaker than the 1.3 percent expansion seen in the fourth quarter. Currently, GDP is 0.7 percent above its pre-corona virus level. In the first quarter, real household disposable income declined by 0.2 percent. GDP  household spending increased by unrevised 0.6 percent, driven by rises in spending on restaurants and hotels and communications. Government spending dropped by revised 1.3 percent, due to lower healthcare expenditure. Growth in gross fixed capital formation was revised to 3.8 percent from 5.4 percent, and business investment fell by a downwardly revised 0.6 percent. Due to higher import prices, the trade deficit widened to a record 5.4 percent of nominal GDP in the first quarter. The current account deficit widened to GBP 51.7 billion in the first quarter from GBP 7.3 billion in the fourth quarter, climbing to 7.1 percent of GDP. 

China Manufacturing Purchasing Index recovers In June. China's manufacturing sector returned to the expansion zone in June, as revealed by the Manufacturing Purchasing Managers Index, which  rose to 50.2  in June from 49.6 in May. A reading above 50.0 indicates expansion. The new order sub-index came in at 50.4 versus 48.2 in the prior month and the production index climbed to 52.8 from 49.7.  The non-manufacturing PMI advanced notably to 54.7 from 47.8 in the previous month, driven by the improvement in construction. Demand remains weak and future demand depends on the likelihood of further lockdowns. Given this environed it will be challenging for the government to achieve the 5.5 percent GDP target set in March.
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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).