“Boris Johnson Wins UK Election …”

Boris Johnson Wins UK Election

Prime Minister Boris Johnson who fought the election under the slogan “Get Brexit Done” promising to end the deadlock and spend more on health, education and the police has won.  He said that his election victory provided an overwhelming mandate to take Britain out of the European Union on 31 January.  This was his biggest Conservative win since Margaret Thatcher’s landslide victory of 1987, beating his socialist Labour Party Jeremy Corbyn by winning 365 seats with a majority of 80 whilst Labour won 203 seats.  With such a big majority Johnson will now swiftly ratify the Brexit deal he struck with the EU so that the UK can leave on 31 January.  This is 10 months later than initially planned.


According to a survey on Monday British businesses experienced their worst downturn in the run-up to Prime Minister Boris Johnson’s landslide election victory last week.    The early reading of the IHS Markit/CIPS UK Purchasing Managers’ Indexes (PMI) for Britain showed that the decline in both the services and manufacturing sectors accelerated unexpectedly in December.  According to IHS Markit, the readings which pushed up British government bond prices, suggested the world’s fifth biggest economy is on course to contract in the fourth quarter.

UK Inflation

British inflation remained at a three-year low in November below the Bank of England’s 2 percent target showed official data.  Consumer prices rose at annual rate of 1.5 percent for a second month running in November, said the the Office for National Statistics (ONS) on Wednesday.     The BOE last month said that inflation would probably fall to 1.25 percent in early 2020 because of caps on energy and water prices, but was likely to be back above its 2 percent target in about three years’ time.


According to cabinet office minister Michael Gove on Sunday, British Prime Minister Boris Johnson will “get Brexit done” by 31 January and then agree on a new trade deal with the EU by the end of 2020.  Whilst winning over many traditionally Labour voters in northern and central England, Johnson has proclaimed he will lead a “people’s government.”  With regards to the new trade accord with the EU, Gove further added that, “it will be concluded next year.  We will be in a position to leave the European Union before the 31 January of next year and then we will have concluded our conversations with the EU about the new framework of free trade and friendly cooperation that will have with them by the end of next year.” Meanwhile, Michael Barnier, the EU’s chief negotiator has cast doubt over whether the trade talks will be so swiftly concluded, saying last month that the negotiations would be “difficult and demanding” and warning Britain that the block “will not tolerate unfair competitive advantage.”  With regards to the opposition, Thursday’s election was the worst result since 1935.  The transition period can run until the end of December 2022 under the current rules, but the Conservatives made an election promise not to extend it beyond the end of 2020.

BOE Policy Meeting – Thursday

The Bank of England kept interest rates steady on Thursday stating that it was too soon to gauge how much Prime Minister Boris Johnson’s election victory would lift the Brexit uncertainty.  Two of the BOE’s nine policymaker voted for a second month in a row for a cut to borrowing costs due to fears the job market is deteriorating.  For the other seven, it was too soon to take action as they said economic growth was expected to pick up in early 2020 amid the easing of Brexit uncertainty, higher spending by the government and a recovery in global economic growth.   In a statement the BOE said, “There was no evidence yet about the extent to which policy uncertainties among companies and households had declined following the recent domestic policy developments.”  The statement further said that, “if global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation.”  However, “further ahead,” the BOE said it might need to raise borrowing costs, “at a gradual pace and to a limited extent” if those risks did not materialise and the economy grew as expected.  Meanwhile inflation is below the 2 percent BOE target at 1.5 percent.

Donald Trump The Third President To Be Impeached

Donald Trump on Wednesday became the third US president to be impeached as the House of Representatives formally charged him with abuse of power and obstruction of Congress.  Trump is accused of abusing his power by pressuring Ukraine to investigate political rival Joe Biden a leading contender for the 2020 Democratic presidential nomination, as well as a discredited theory that Democrats conspired with Ukraine to meddle in the 2016 election.  In the 243-year history of the US no president has been removed from office by impeachment.  That would require a two-thirds majority of  the 100-member Senate, meaning at least 20 Republicans would have to join Democrats in voting against Trump and none has yet indicated that they will.

German Economy

On Monday the economy ministry said the German economy is more or less stagnating adding that there are initial signs that an industrial recession could be coming to an end as orders stabilize.  The ministry also said in its monthly report that indicators at the start of the fourth quarter pointed to subdued private consumption even though disposable incomes continued to increase.  Consumption has helped to keep Europe’s economy going compensating for weak exports.  The trade war between the US and China has placed the overall economy into recession.  The fears are that the manufacturing sector continues to shrink and the slowdown could spread to the services sector.  IHS Markit flash composite Purchasing Managers’ Index (PMI) for December on Monday confirmed the diverging results that manufacturing activity slipped and services rose.  Markit said that the rate of decline in new orders and exports was stabilising giving hope for the manufacturing sector.  According to  Bundesbank, household’s disposable income fell due to a slowdown in employment growth.  It trimmed the growth forecast for this year to 0.5 percent and halved its prediction for 2020 to 0.6 percent.

 “Phase One” Agreement

The United States and China announced on Friday a “phase one” agreement that will reduce some US tariffs in exchange for what US officials said would be a big step in Chinese purchases of US farm products and other goods.  The additional tariffs on Chinese goods totalling $160 million that the US was set to impose over last weekend have not materialised.  According to US Trade Representative Robert Lighthizer, the deal would nearly double US exports to China over the next two years and was “totally done” despite the need for translation and revisions to its text.  Meanwhile China’s State Council’s customs tariff commission said on Sunday it had suspended additional tariffs on some US goods that were meant to be implemented on 15 December.

Markets Wrap

Japanese stocks fell on Monday, falling from an over one-year high hit in the previous session, as investors booked profits after an initial rally sparked by the preliminary trade deal between the US and China.  On the Nikkei index there were 63 advancers against 153 decliners on Monday.   European shares hit record highs on Monday, rising for the fourth successive session as a preliminary US-China trade deal helped the British Conservative Party’ s election victory.  The London FTSE 100 jumped 2.3 percent leading gains among regional indexes as investors bought back in a market that had dropped over concerns over Brexit.  Eurozone bond yields fell on Tuesday as the British government signalled a willingness to accept a Brexit cliff-edge to push Brussels to agree a trade deal and a final agreement on the first phase of Sino-US trade deal.  Most 10-year eurozone bond yields were about two basis points lower with Germany’s 10-year yield at -0.29 percent, far off a six-month high of -0.2017 percent.  World stocks hovered just off record highs on Wednesday after climbing for five straight sessions.  European stock markets edged higher, after they have been hit in the previous session as Boris Johnson took a harder line on Brexit.  The MSCI world stock index was slightly off record highs, having rallied almost 23 percent this year, and set for its best year in a decade and the fourth-best year ever.  Meanwhile, upbeat economic news had helped the S&P 500 reach a record for the fourth straight session on Tuesday, building on its 27 percent gain this year.    Asian shares pulled back from a 1 ½ year peak on Thursday as investors sold ahead of a holiday trade and looked for fresh data on the state of the global economy.  Investors were also watching the proceedings in Washington where the Democrat-led US House of Representatives voted to impeach Republican Donald Trump for abuse of power and obstruction of Congress.  Market reaction has so far been limited as the Republican-controlled Senate is widely expected not to vote to remove Trump from office.  The MSCI’s broadest index of Asia-Pacific shares outside Japan briefly touched the highest since June 2018 but dropped 0.4 percent.  Australian shares erased the early gains to trade 0.27 percent lower due to declines in the mining sector, while Chinese shares fell 0.32 percent.  Overall sentiment was supportive of equities and riskier assets, but less favourable for safe-haven assets like bonds due to expectations that economic growth will start to pick up next year after a roller-coaster 2019.

Currency Roundup 

Trade sensitive currencies such as the Australian dollar and the Chinese yuan held below their four-month highs on Monday.  Meanwhile sterling remained supported by last week’s resounding election win for British Prime Boris Johnson’s Conservative Party. The win by the prime ministry saw the pound rally because the market perceives his party as the most able to end the Brexit uncertainty which has harmed the UK economy.   The offshore Chinese currency was little changed around 7 yuan per dollar but below four-month highs around 6.92 hit last week.  The euro rose 0.2 percent to $1.1142 but also off last week’s peaks showing little immediate reaction to data showing eurozone business growth remained weak in December.  Whilst the dollar was a bit firmer at 109.43 yen, its index, which measures the greenback’s value against a basket of currencies, was slightly lower on the day at 97.02.  Sterling underwent heavy losses amid renewed Brexit uncertainty and the threat of a hard exit, where it slides 1.5 percent on Tuesday in its largest one-day fall this year.  Thursday saw the sterling suffering heavy looses on concerns Britain could still crash out of the European Union without a trade deal in place after a transition period ending in December 2020.

Japan And South Korea Find ‘Common Ground’ In Trade Dispute

The first meeting between senior Japanese and South Korean trade officials since Japan imposed controls on exports of high-technology materials to its neighbour ended hours later than scheduled on Monday.  The two stating that they reached a “common ground” and agreeing to talk again.  The relationship between the two countries dropped in July after Japan imposed the curbs on exports to South Korea of three materials used to make semiconductors, threatening a pillar of its economy and the global supply-chains of chips.  The curbs came about amid the soured relations over a dispute over Japan’s wartime actions.

US Manufacturing Production In November   

US manufacturing output rebounded more than expected in November amid an end to an almost six-week strike at General Motors plants that boosted auto production.  On Tuesday the Federal Reserve said that manufacturing production rose 1.1 percent last month while industrial output also rose 1.1 percent in November.  Excluding motor vehicles and parts, overall industrial production and manufacturing output in November increased by 0.5 percent and 0.3 percent respectively.  The FED’s measure of the industrial sector includes manufacturing, mining,  electric and gas utilities.  There was a 12.4 percent jump in the production of motor vehicles and parts in November.  Overall production increased by 2.1 percent for consumer goods and 1.7 percent for business equipment, said the FED.  Utilities output increased 2.9 percent compared to a decline of 2.4 percent in the previous month.  The manufacturing sector which makes up about 11 percent of the US economy has weakened amid the 17-month trade war between the US and China.


Gold prices steadied on Monday as a weaker dollar and lack of details on the “phase one” US-China trade deal offset the pressure from the gains in the stock markets.  Spot gold had reached $1,477.31 per ounce on the day.  Gold prices edged higher on Thursday after the US House of Representatives voted to impeach President Donald Trump, fuelling fears of political uncertainty in the US.  As the US dollar eased slighted against a basket of currencies, it made gold cheaper for holders of other currencies.

Oil Prices

Oil prices held near three-month highs on Monday, supported by the announcement of an initial trade deal between the US and China.  Meanwhile on Tuesday oil rose further above $ 65 a barrel, supported by hopes that the US-China trade deal will bolster the demand for oil in 2020 and the prospect of lower US crude supplies.  According to the US Energy Information Administration monthly forecast report issued on Monday, US oil output from seven major shale formations is expected to rise about 29,000 barrels per day in January to a record 9.14 million bpd.

Malta:  Harmonised Index Of Consumer Prices (HICP) – November 2019

In November 2019, the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 1.3 percent down from 1.4 percent in October 2019.  The largest upward impact on annual inflation was measured in the Restaurants and Hotels Index, while the largest downward impact was recorded in the Furnishings, Household Equipment and Routine Household Maintenance Index.  The HICP measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services.  The HICP is calculated according to the rules specified in European Union Regulations developed by Eurostat in conjunction with the EU Member States.

Malta:  Industrial Producer Price Indices – November 2019

The industrial producer price index went up by 1.4 percent when compared to November 2018 amid a rise of 2.32 percent in intermediate goods, 1.8 percent in capital goods and 0.84 percent in consumer goods. Meanwhile no price changes were registered in the energy sector.  Industrial producer prices for the domestic market increased by 0.77 percent.  During November 2019, the industrial producer index registered a drop of 0.23 percent over the previous month.  This was due to a price decrease of 0.57 percent in intermediate goods.  Consumer goods went up by 0.01 percent.  There were no changes in the energy and capital goods sectors.



Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt


December 20th, 2019

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