“IMF Cuts World Economic Growth Forecasts …”

IMF Cuts World Economic Growth Forecasts

The International Monetary Fund (IMF) cuts its global economic growth forecasts for 2018 and 2019, saying that trade policy tensions and the imposition of import tariffs were taking a toll on commerce while emerging markets struggle with tighter financial conditions and capital outflows.  The IMF said in an update to its World Economic Outlook it was now predicting a 3.7 percent global growth in both 2018 and 2019, down from its July forecast of 3.9 percent growth for both years.  The downgrade is attributed to different factors including  import tariffs between the United States and China, weaker performance by Eurozone countries, Japan and Britain and rising interest rates that are putting pressure on some emerging markets with capital outflows, notably Argentina, Brazil Turkey and South Africa.  The Eurozone growth forecast for 2018 was cut to 2 percent from 2.2 percent previously with Germany particularly hard it by a drop in manufacturing orders and trade volumes.  Brazil will see a 0.4 percentage point drop in GDP growth to 1.4 percent for 2018 as nationwide truckers strike paralyzed much of the economy.  Iran which is also facing a new round of US sanctions next month, also saw its growth forecast cut, said the IMF.  According to the IMF, the balance of risks was now tilted to the downside, with a higher likelihood that financial conditions will tighten further as interest rates normalize, further hurting emerging markets at a time when US-led demand growth will start to slow as some tax cuts expire.  Trade tensions are expected to continue although IMF officials view the US-Mexico-Canada agreement as a positive sign.  On Thursday IMF Managing Director Christine Lagarde warned countries against engaging in trade and currency wars that hurt global growth and imperil “innocent bystanders”.  Whilst formally launching the IMF and World Bank annual meetings in Bali, Lagarde urged countries to “de-escalate” trade conflicts and fix global trading rules instead of abandoning them.

EU Concerned Over Italy’s Budget Gaps

Italy has a public debt to GDP ratio of 133 percent and the highest debt servicing costs in Europe.  The European Commission has told Italy that it is concerned at Italy’s budget deficit plans for the next three years as they breach what the EU asked the country to do in July.  Rome however insisted on Saturday that it would “not retreat” from its spending plans.   The Commission in a letter to Italy’s Economy Minister Giovanni Tria, said that with a planned deficit of 2.4 percent of GDP in 2019, Italy’s structural deficit which excludes one-offs and business cycle effects would rise by 0.8 percent of GDP.  In July the Council of EU Ministers asked Italy to reduce the structural deficit by 0.6 percent of GDP next year.  Italy is planning to bring down the headline deficit to 2.1 percent in 2020 and to 1.8 percent in 2021, however in its letter the Commission said that it would not be enough, because it would mean Italy’s structural deficit would not change in 2020 to 2021.  Italy is to submit its draft budget to the Commission for checks if it is in line with EU rules by 15^th October.

Brexit

There are hopes that a Brexit deal can be reached before an EU summit on 18^th October.  On Wednesday European Union Brexit negotiator Michel Barnier said that 80 to 85 percent of the withdrawal deal was agreed. Barnier said Britain must accept possible checks on goods moving between its mainland and its province of Northern Ireland.  Meanwhile, the Northern Irish party that British Prime Minister Theresa May’s government relies on for support, has threatened to challenge her leadership if their wishes are not respected on the Irish border.

Trump Once Again Criticised The Federal Reserve

US President Donald Trump once again on Tuesday criticised the Federal Reserve telling reporters that the central bank is going too fast in raising rates when inflation is minimal and government data is pointing towards a strong economy.  The FED last raised interest rates in September and left its plans intact to steadily tighten monetary policy, amid forecasts that the US economy would enjoy at least three more years of economic growth.   The FED has a mandate by Congress to aim for low inflation and low unemployment.  US consumer price inflation is above 2 percent annually and the unemployment rate is the lowest in about 40 years.

US Producer Data   

Data showed that US producer prices gained 0.2 percent in September, reversing an unexpected drop in August and in line with expectations.  A key measure of underlying producer price pressures, that excludes food, energy and trade services, grew 0.4 percent last month, the largest increase since January.  With the release of data, US Treasury yields advanced with the US 10 year yield hitting at 3.232 percent up from 3.208 percent on late Tuesday.  Likewise, US 30 year yields were also higher at 3.394 percent from Tuesday’s 3.369 percent.

US Inflation

US consumer prices rose less than expected in September, amid slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly.  The modest price increases come despite the US labour market looking robust by most measures.  A separate report on Thursday showed an unexpected but modest rise in the number of Americans filing for unemployment benefits last week.  The Consumer Price Index increased 0.1 percent last month after rising 0.2 percent in August, said the Labour Department.  In the 12months up to September, the CPI increased by 2.3 percent, slowing from August’s increase of 2.7 percent.   Meanwhile, excluding volatile food and energy components, the CPI edged up 0.1 percent for the second straight month.  This index had increased 0.2 percent in May, June and July.  In the 12 months through September, the core CPI increased 2.2 percent.

China’s Central Bank  

China’s central bank said on Wednesday it will improve its supervision mechanism to combat money laundering and counter terrorism financing.  According to a statement on the PBOC (People’s Bank of China) website anti-money laundering efforts are important to contain risks at a time when China is opening up its financial sector and trying to clamp down on financial risks.    Meanwhile, on Monday Chinese stocks tumbled as investors dumped shares across the board despite Beijing’s move over the weekend to spur more lending at a time of growing concerns over the economic impact of the trade war between China and the US.  Spot yuan ended the afternoon on Monday at its lowest in seven weeks against the US dollar amid expectations of more easing measures by China and surging US bond yields, putting pressure on the Chinese currency.  On Sunday, the People’s Bank of China (PBOC) announced a 100-basis-point cut to the banks’ reserve requirement ratio (RRR) increasing its efforts to support the economy and calm down market concerns.

Oil

Oil prices almost fully recovered from a sharp drop on Monday as investors see the move by China’s economic stimulus would lift crude demand in China.  After China’s central bank on Sunday slashed lenders’ reserve requirements, as a sign that Beijing is working to maintain economic growth global benchmark, Brent crude tumbled to below $83 per barrel.  Brent crude settled at $83.91 per barrel while US crude had fallen to a session low of $73.07 per barrel but climbed back up to settle at $74.29.  According to traders, oil prices got a boost from a new report showing a small drop in oil inventories last week at the main US storage hub in Oklahama.  Furthermore, reports that some Iranian oil exports will keep flowing after the US re-impose sanctions, kept prices below $83 a barrel.  Last week Saudi Arabia announced plans to lift crude output next month to 10.7 million barrels per day, which is the kingdom’s highest level ever.  On Monday, Gulf of Mexico oil companies shut down 19 percent of oil production as Hurricane Michael moved towards eastern Gulf states of Florida.  Oil prices skidded in line with US equity markets.  Traders were worried about shrinking Iranian supply from US sanctions and on Hurricane Michael, which closed some US Gulf of Mexico oil output.

Currencies

On Tuesday the euro fell to a seven-week low over concerns about Italy’s budget. The euro steadied on Wednesday near the $1.15 moving away from the seven week lows after a fall in US Treasury yields took some steam off the dollar’s recent run.  Rising Treasury yields and concern over the sustainability of Italy’s public finances have fuelled another rally in the dollar in recent sessions, sending the dollar to a 1 ½ month high on Tuesday. On Wednesday, the dollar index was mainly unchanged at 95.713 not far off from the 96.163 reached during the previous session and at its highest level since 20^th August.   The Euro hovered around $1.1497 having briefly pushed past the $1.15 in Asian trading hours.  On the same day, Italian Economy Minister Giovanni Tria reiterated that the government  would do everything in its power to regain the confidence of financial markets. Other currencies such as the Japanese Yen, which is viewed as a safe-haven currency recently but has performed badly versus the US currency and remains at it near 11 month lows.  On Thursday the Chinese yuan weakened slightly against the US dollar amid a global equity sell-off.  Prior to market open the People’s Bank of China set the midpoint rate at CNY 6.9098 per dollar, weaker than the previous fix of 6.9072.  The spot market opened at 6.9307 per dollar and was changing hands at 6.9306 at midday.  Meanwhile the US dollar weakened on Thursday following a drop overnight in the US Treasury yields.  With long dollar positions at their biggest since the end of 2016  amongst hedge funds, markets have become focused on any slight change in likely policy setting from the US Federal Reserve.  Investors found shelter in safe-haven assets. The MSCI index of global stocks hit its lowest  levels since early February while gauges of market volatility jumped.  Sterling traded flat on Thursday despite signs that the EU and Britain may soon agree a Brexit deal.

Market Round Up

On Thursday Wall Street suffered its worst drop in eight months.  Asian markets also sank and the Japan’s Nikkei fell to its steepest fall since late 2014 while China blue chips slid 3 percent.  All that red attracted the attention of President Donald Trump who pointed at the FED for raising interest rates and stating to reporters, “I really disagree with what the FED is doing.”  It was the hawkish commentary from FED policy makers that triggered the sudden sell off in Treasuries last week and sent long-term yields to their highest in seven years.  The surge made stocks less attractive when compared to bonds while also threatening to curb economic activity and profits. The shift in the yields is also moving funds out of emerging markets, putting pressure on the Chinese yuan, as Beijing is fighting a battle with the US.  Meanwhile, China’s central bank has been allowing the yuan to gradually decline, breaking the psychological level of 6.9 and leading speculators to push the dollar up to 6.9380.  This has forced other emerging market currencies to weaken and stay competitive, drawing the attention of the United States which sees it an unfair devaluation.  This is a danger for the US if Beijing had to intervene to support the yuan.  The dollar is already loosing ground to both the yen and the euro as investors favoured currencies of countries that boasted large current account surpluses.  The euro rose to $1.1535 away from the $1.1429 early in the week.  The dollar fell to 112.20 yen from a peak last week of 114.54. Meanwhile gold edged down to $1,192.92. On Thursday US stocks dropped, extending a sell-off from a day earlier, after the major indexes broke key technical levels with risk apetite showing no sign of picking up.  The Dow Jones was down 1.3 percent at 25,264.82 while the S&P was down 1.33 percent.  The NASDAQ composite was down 0.98 percent at 7349.44.

BMW  

BMW will pay 3.6 billion euros to take control of its main joint venture in China. The luxury carmaker said on Thursday it would increase its stake in its venture with Brilliance China Automotive Holdings Ltd to 75 percent from 50 percent, with the deal closing in 2022 when rules that cap foreign ownership for all auto ventures are lifted.  The move will likely spur BMW to shift more production to China.   This move by a global carmaker came along as Beijing starts to relax ownership rules for the world’s auto market.  Beijing has been keen for global carmakers to invest more in China and has eased restrictions that cap foreign ownership of electric vehicle businesses at 50 percent.    BMW is one of the biggest exporters of vehicles from the United States to China, obviously falling in the midst of the trade war between US and China.  As trade tensions have escalated, the Chinese government has pledged to open up its markets more widely, including cutting taxes on imported vehicles, cancer medicines and a range of consumer goods.

China

China’s September export surged higher in September producing a record trade surplus with the United States that could increase the heated dispute between Beijing and Washington.   The robust numbers reported on Friday by China’s customs agency are the last ones from China before the US congressional elections on 6^th November.    September exports rose 14.5 percent from a year earlier,  the fastest pace since February, according to the customs data.  This is above the August figure of 9.8 percent.  Along with electrical machinery, exports for textiles, furniture and chips all rose faster than in the previous month, showed the data from customs.  Over the first nine months of the year China’s surplus with its largest export market totalled $225.79 billion compared with about $196.01 billion in the same period last year.

Malta:  International Trade:  August 2018

Preliminary figures show that Malta registered a trade deficit of EUR 334.8 million in August 2018,  (August 2017:  EUR 158.5).  Imports show an increase of EUR 143.4 million, while exports decreased by EUR 32.9 million.

Malta: Index of Industrial Production:  August 2018

In August 2018, seasonally adjusted index of industrial production increased by 9.2 per cent.  Increased were registered in the production of consumer goods, capital goods and energy.  On the other hand a decrease was recorded in the production of intermediate goods.

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