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BOV Market Watch - Week ending 1st April 2022
01 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.

Fed’s favourite inflation gauge climbed to four-decade high in February. Inflation continued to run at the fastest pace in 40 years in February, the latest data released on Thursday showed, at a moment when the Russian invasion of Ukraine and continued supply chain disruptions conspired to keep prices soaring. Core Personal Consumption Expenditures (PCE), a key inflation gauge closely watched by the Federal Reserve (Fed), came in at 6.4 percent growth year over year for February, up from the 6.1 percent increase in the year through January and the fastest inflation rate since 1982. The pace far exceeds the two percent annual inflation that the Fed targets. While central bankers expect the current rapid price growth to cool by the end of the year, falling to 4.3 percent by the final three months of 2022, that rate would still be too quick for comfort.

German consumer confidence plunges on Ukraine conflict. The mood of consumers in Germany has darkened significantly as the Russian invasion of Ukraine dimmed the outlook for Europe’s largest economy, according to a closely watched survey published on Tuesday. Pollster GfK’s forward-looking barometer dropped to minus 15.5 in March from a revised reading of minus 8.5 in February.  Economists had expected a reading of -14. The downward trend in the headline index continued and a sharp increase in the propensity to save in March further reinforced it, the agency added. The impact of sanctions, high energy costs, and supply chains broken by the outbreak of the war means “the risk of a recession has risen sharply,” the pollster said.

UK mortgage approvals dip in February; consumer credit quickens. UK mortgage approvals unexpectedly ticked down in February, data from the Bank of England (BoE) showed on Tuesday. Approvals for house purchases, an indicator of future borrowing, fell to 71,000 in February from 73,800 in January. Economists had predicted approvals to rise to 74,850. However, the February figure sits above the pre-pandemic average of 66,700 in the 12 months to February 2020.  BoE figures also showed the average annual growth of consumer credit accelerated to 4.4 percent in February from 3.2 percent in January. "The annual growth rates of credit card borrowing and other forms of consumer credit were 9.4 percent and 2.4 percent respectively," the central bank added. 

China manufacturing contracts on tight Covid restrictions. China's manufacturing sector contracted noticeably in March due to the tight restrictions imposed to contain the spread of the latest wave of the coronavirus, survey results from S&P Global showed on Friday. The Caixin Purchasing Managers' Index fell to 48.1 in March from 50.4 in February. The pace of decline was the quickest seen since February 2020. A score below 50.0 indicates contraction. There was a renewed fall in production as the strict restrictions disrupted operations, supply and dampened customer demand. The fall in production was the steepest seen for 25 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).