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BOV Market Watch - Week ending 27th November 2020
27 Nov 2020

Banks likely to need more loan loss provisioning – ECB. The European Central Bank (ECB) said lenders might require higher loan loss provisioning amid missed payments and rising number of corporate defaults. In the latest Financial Stability Review, released last Wednesday, the ECB said that, since the global financial crisis, weak profitability prospects continue to weigh on bank valuations despite the increased resilience of eurozone banks. The central bank noted that downside risks to bank profitability arise from a weaker outlook for lending volumes and signs of optimistic provisioning. “A weaker than expected economic recovery or premature end of loan guarantees coupled with growing vulnerabilities in the non-financial private sector may entail higher loan loss provisioning needs and weigh on bank profitability,” the bank added.

German economy rebounds faster than expected. After the relaxation of Covid-19 restrictions, German gross domestic product (GDP) in the third quarter recovered by 8.5 percent compared with the previous quarter, the Federal Statistical Office Destatis said on Tuesday. The German economy "offset a large part of the massive decline" in GDP caused by the Covid-19 pandemic in the second quarter but it was still four percent lower than in third quarter of 2019, before the Covid-19 crisis began. "The rebound of German GDP in the third quarter of 2020 was stronger than most forecasters had anticipated," Axel Lindner, deputy head of macroeconomics department at the Halle Institute for Economic Research said.

US new home sales remain elevated in October. In a sign that record low mortgage rates are underpinning house-buyers’ interest, new home sales in the US held up in October, remaining near the best rate since 2006 and well above pre-pandemic levels. The Commerce Department said on Wednesday that new home sales dipped by just 0.3 percent to an annual rate of 999,000 in October after inching up by 0.1 percent to a revised rate of 1.002 million in September. Economists had expected new home sales to jump by 1.1 percent to a rate of 970,000 from the 959,000 originally reported for the previous month. Separately a report released last week by the National Association of Realtors unexpectedly showed a continued increase in existing home sales in the US in the month of October, as sales jumped by 4.3 percent to an annual rate of 6.85 million.

UK private sector contracts as lockdowns shut services firms. British business activity has contracted in November as a new wave of Covid-19 restrictions hammered the huge services industry, but news of potential vaccines has sharply boosted hopes for 2021, a survey showed on Monday. The initial reading of the IHS Markit/Chartered Institute of Procurement & Supply composite output index plummeted to 47.4 in November from 52.1 in October. It is the first time the index has gone below the 50.0 growth threshold level since June. However, the forward-looking component of the index hit its highest reading in more than five years, boosted by progress on Covid-19 vaccines.

Malta producer prices fall for second month. Malta's producer prices fell for the second consecutive month in October, data released on Wednesday by the National Statistics Office showed. The producer price index fell 0.62 percent year-on-year in October, on the heels of a 0.98 percent decrease in September. Prices for intermediate goods declined by 2.31 percent annually in October. Meanwhile, prices for capital goods and consumer goods rose by 0.51 percent and 0.93 percent, respectively. Domestic market prices increased by 1.68 percent, while non-domestic market prices fell 2.06 percent. On a monthly basis, producer prices rose 0.10 percent in October, after a 0.54 percent decrease in the prior month.

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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).