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BOV Market Watch - Week ending 22 May 2020
22 May 2020

Fed minutes show that more policy action is likely. The minutes of the Federal Reserve's (Fed) latest monetary policy meeting held on 28-29 April noted that, in addition to the severely adverse near-term effects of the coronavirus pandemic, the severe measures undertaken to contain it have created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term. The minutes indicated that more action is likely ahead, though they did not specify when. Members said “further clarity” on asset purchases might be needed “later this year.” After slashing its benchmark interest rate to near zero as the coronavirus pandemic took hold, the Fed’s monetary policy committee voted to keep the rate in a range between zero percent and 0.25 percent and not move it until a recovery is firmly in place.

Eurozone consumer confidence improves in May. Eurozone consumer confidence recovered slightly in May as several countries in the single-currency bloc started removing restrictions placed during the lockdown to curb the spread of the coronavirus, estimates from the European Union showed. Eurozone consumer confidence rose by 3.2 points in May from the April number. The European Commission said the flash estimate showed that eurozone consumer morale improved to -18.8 this month from -22.0 in April. Economists forecast a fall to -24.0.The corresponding index for the whole of the EU rose to -19.5 from -22 in the prior month. However, both indicators remained far below their long-term averages of -11.1 and -10.4, respectively.

UK inflation slowest since 2016 on lower energy prices. The UK's inflation rate fell in April to its lowest level since August 2016 as the economic fallout of the first month of the lockdown hit prices. The Consumer Prices Index, or CPI, slowed to 0.8 percent in April from 1.5 percent in March, the Office for National Statistics (ONS) said. Cheaper fuel prices and lower energy bills were the dominant factors pushing inflation lower. But the prices of games and hobbies rose, which the ONS said may be due to people spending more time at home. This was the first CPI reading below one percent since 2016 and the lowest reading since August of that year, when prices had started to accelerate following the depreciation of the British currency in the aftermath of the Brexit referendum that made imports more expensive. Core inflation, which excludes energy, food, alcohol and tobacco, edged lower to 1.4 percent in April from 1.6 percent in the prior month.

India's central bank cut its key policy rate for a second time this year in a non-scheduled move on Friday and extended some stimulus measures to mitigate the economic impact of Covid-19, and the consequent lockdown, as it expects the economy to contract this year. The Monetary Policy Committee slashed the policy rate by 40 basis points to four percent, the Reserve Bank of India announced in a statement. In March, the bank slashed the repo by 75 basis points. Policymakers are of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated and various sectors of the economy are experiencing acute stress, the RBI said.

Fitch cuts Australia's sovereign outlook to negative, affirms 'AAA' rating. Fitch Ratings downgraded its outlook on Australia’s sovereign debt to “negative” but affirmed its prized AAA credit rating. Fitch cited the impact to the economy and public finances from the Covid-19 pandemic. Fitch said it expects Australia's economic growth to fall sharply in 2020 and government spending in response to the health and economic crisis will lead to large fiscal deficits and a sharp increase in government debt. It forecast Australia economy to contract by five percent this year driven by a plunge in economic activity during the second quarter due to virus containment measures. It expects a gradual economic recovery to begin in the second half of 2020.

 

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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).