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BOV Market Watch - Week ending 6th November 2020
06 Nov 2020

Eurozone retail sales decline in September.  Eurozone retail sales declined more-than-expected in September after recovering in August, data published by Eurostat showed on Thursday. Sales dropped by two percent month-on-month in September, worse than expectation of 1.2 percent fall. The volume of retail trade decreased by 2.6 percent month-on-month for non-food products, by 1.4 percent month-on-month for food, drinks and tobacco and by 0.2 percent month-on-month for automotive fuels. On a yearly basis, growth in retail sales halved to 2.2 percent from 4.4 percent in August. Economists had forecast a 2.8 percent rise. The decline in Eurozone retail sales brings them back to the level seen before the pandemic, but things are likely to get much worse before they get better, as new lockdown measures will hit the retail sector heavily, Bert Colijn, an ING economist said.

US Services Index Dips More Than Expected October. The services sector in the US expanded for a fifth consecutive month in October, albeit the pace of growth was slower than in September, suggesting increasing weakness amid rising Covid-19 infection numbers. The ISM Services Report on Business Purchasing Managers’ Index (PMI) for October fell to 56.6 from the September reading of 57.8. Economists expected the services PMI to be at 57.5. Readings above the 50 mark indicate expansion in activity. “There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections,” said Anthony Nieves, chair of the ISM Services Business Survey Committee. In contrast to the services sector, the ISM Manufacturing Report for October released earlier in the week showed US factory output picking up strongly.

BOE increases bond buying programme more than expected. In its monetary policy meeting on Thursday, the Bank of England increased its already huge bond-buying programme by a larger-than-expected 150 billion pounds as it anticipates more economic damage from new coronavirus lockdowns as well as from Brexit. The nine-member Monetary Policy Committee unanimously decided to raise the size of the asset purchase programme to GBP 895 billion from GBP 745 billion. Economists were expecting an expansion of GBP 100 billion. The MPC also voted 9-0 to hold the interest rate at 0.10 percent. At the same time, the central bank expects the economy to shrink by two percent in the final three months of 2020, before bouncing back at the start of 2021, assuming current restrictions loosen.

RBA expects economy to recover at faster than expected. The Australian economy is expected to be back to its pre-pandemic level by the end of 2021 but the Reserve Bank is warning of a rocky recovery that will be dominated by unemployment, a shortage of hours for those who want more and flat wages growth. In its quarterly monetary policy statement published on Friday, the bank upgraded most of its forecasts while in effect ruling out negative interest rates to help buoy the economy in coming years. The bank expects the economy to contract by four percent in the year to the end of December before rebounding by five per cent in the 12 months after that. In its August forecast, the RBA had been expecting the economy to shrink by six percent before growing by six per cent to the end of 2021.

Malta industrial production continues to drop. Malta's industrial production continued to decline in September, albeit at a softer pace, figures from the National Statistics Office showed on Thursday. Industrial production fell by a working-day adjusted 3.2 percent year-on-year in September, on the heels of a 3.4 percent decrease in August. Among the main industrial groups, capital goods production decreased by 8.3 percent annually in September. Output of consumer goods and intermediate goods fell by 3.5 percent and 1.3 percent, respectively. Meanwhile, production of energy increased by 1.8 percent. On a month-on-month basis, industrial production fell a seasonally adjusted 1.7 percent in September, after a 1.6 percent drop in the prior month. Output fell for the first time in four months.

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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).