“A Defeat For Theresa May’s Brexit Deal…”

A Defeat For Theresa May’s Brexit Deal

Lawmakers voted 432-202 against the Brexit divorce deal just 10 weeks before it is due to leave.  It is the worst defeat in modern British history causing political chaos that could lead to a disorderly exit from the EU or even a reversal of the 2016 decision to leave.  After the first British parliamentary defeat of treaty since 1864, opposition Labour Party leader Jeremy Corbyn called a vote of no confidence in May’s government to be held on Wednesday.   The small Northern Irish DUP party refused to back the deal but said it would stand behind May in the no-confidence vote.  Pro-Brexit Conservatives said they would support her.  Meanwhile, Germany called for new talks between the UK and the EU, as the leaders warned of the consequences of a no-deal Brexit.   On Wednesday Theresa May won a vote of no confidence in Parliament whereby lawmakers voted 325 to 306, by a margin of 19 votes,  that they had confidence in the May’s government.   She then invited members of parliament to talk about a new Brexit plan.  On Thursday Theresa May tried to break the impasse by searching for an emergency exit deal.  If May fails to find consensus, the UK will drop out of the European Union on March 29 without a deal or will be forced to halt Brexit, possibly by holding a national election or even another referendum.  Businesses such as Channel Tunnel operator Eurotunnel to Scottish whisky distillers, have called for urgent and decisive government action and warned of the consequences of a no-deal Brexit.  The Labour party wants a permanent customs union with the EU, a close relationship with its single market and greater protection for workers and consumers.  However, the chairman of the Conservative party Brandon Lewis said on Thursday that Britain should not stay in the current customs union because striking international trade deals after Brexit is a priority.  May has appealed to opposition leaders to meet for cross-talks before she presents an alternative proposal to parliament on Monday.  However opponents have set out a list of demands for cooperating including ruling out the possibility that Britain would leave the EU in March without any deal at all.

Greece

Greek Prime Minister Alexis Tsipras on Sunday said he would call a vote of confidence in his government after his coalition ally quit, leaving him without a parliamentary majority.  This raises the possibility of snap elections.  Greece’s right wing defence minister resigned, ending a long dispute with Macedonia over its name, saying he was taking his other six ministers in cabinet with him.  For the Balkan nation to join the European Union and NATO, the Greek parliamentary endorsement of the name is required.  Parliament has already ratified the accord with a constitutional amendment.  The confidence vote was expected to take place later on in the week and the speaker of parliament said he would not support Tsipras in the vote.  On Wednesday, the Greek Prime Minister won a confidence vote in parliament, clearing a major hurdle for an approval of an accord to end a dispute over Macedonia’s name and avoiding the prospect of a snap election.

China’s Exports

In December China’s exports unexpectedly fell the most in two years.  Imports declined, indicating further weakness in the economy in 2019 and deteriorating global demand.  Data on Monday also showed that China posted the biggest trade surplus with the United States on record in 2018.  This could unease further the situation between the US and China.  Soft demand in China is being felt internationally as sales of goods from iPhones and automobiles are slowing.  Exports in December unexpectedly fell 4.4 percent from a year earlier.  Imports also saw a sharp drop falling 7.6 percent in their biggest decline since July 2016. China’s surplus with the US widened by 17.2 percent to $323.32 billion last year, the highest record going back to 2006 according to calculations by Reuters, based on customs data.  Meanwhile, China’s exports to the US declined 3.5 percent in December while its imports from the US were down 35.8 percent for the month.  Chinese policymakers are expected to roll out more support measures in the coming months if domestic and external conditions continue to deteriorate.

US Government Shutdown

With the partial US government shutdown now in its 28^th Day the White House ordered thousands of federal employees back to work without pay in an attempt to limit the impact of the partial shutdown as it persisted without a sign of resolution.  Meanwhile, House Speaker Nancy Pelosi on Wednesday urged President Donald Trump to reschedule his State of the Union address which is scheduled for the 29^th January. Pelosi wrote him a letter citing security concerns because the Secret Service, which is required to provide security for the address, has not received funding during the dispute.  Presidents traditionally deliver the address that lays out the administration’s goals for the upcoming year in the House of Representatives chamber, before a joint session of Congress and the majority of the Cabinet.

US Labour Market – Beige Book

Labour Markets tightened across the US as businesses struggled to find workers with any skill level and wages generally grew moderately, said the Federal Reserve on Wednesday in its latest report on the economy.  The ‘Beige Book’ report which is a snapshot of the US economy obtained from discussions with business contacts, found tight labour markets across all 12 FED districts, with a majority reporting moderate wage gains.  Furthermore, a majority of districts also reported modest-to-moderate price increases, with a number saying higher tariffs had driven up costs. The latest Beige Book was prepared by the Chicago Fed based on information collected on or before 7^th January, 2019.   Although the FED reported that outlooks for the economy were generally positive, it added that many districts said contracts were less optimistic due to increased financial market volatility, rising short-term interest rates, falling energy prices and increased trade and political uncertainty.

Market Wrap

On Monday, Eurozone bond yields slid after weak Chinese data and the threat of a new election in Greece increased risk aversion.  Investors were also waiting for further clarity from the Brexit vote in UK’s parliament on Tuesday.  Asian and European shares dropped on Monday amid China’s exports unexpectedly fell the most in two years in December.    The euro slipped against the dollar and the pound on Wednesday,  over worries about the outlook of the Eurozone economy which weighed on the single currency while sterling edged higher before a no-confidence vote on Prime Minister Theresa May’s government.  Meanwhile, China’s yuan softened on Wednesday in response to the stronger dollar overnight, after policymakers pledged more support for the cooling Chinese economy.  In recent weeks the pound strengthened amid growing confidence that a no-deal or hard Brexit is unlikely, touching a two-month high to the euro on Wednesday and a similar situation with the dollar.  Sterling hovered just off its two-month highs against the euro and the dollar on Thursday as uncertainty grew after the Theresa May won a confidence vote in parliament.  On Wednesday US Treasury yields rose, as stronger than forecast results from two major US banks lifted Wall Street.  Furthermore, Theresa May’s win of no confidence reduced safety bids for US government debt.  Major indexes on Wall Street hit one-month highs as Goldman Sachs and Bank of America posted strong results.  The yield on benchmark 10-year Treasury notes increased by 1.7 basis points at 2.725 percent, rising from near a one-year low of 2.543 percent reached, a week and a half earlier.  Meanwhile, the two year US Treasury yields which is sensitive to the views on FED policies were 1.8 basis points higher at 2.547 percent.  Nearly two weeks ago they touched 2.372 percent which was the lowest level since 30^th May.    On Thursday, concerns over China’s economic outlook and possible US tariffs on European cars dragged stocks lower.  Carmakers fell more than 1.5 percent after US Senate Finance Committee Chairman Charles Grassley said Donald Trump was inclined to impose tariffs on European cars to win better terms on agriculture.  Banks were hit by disappointing Societe Generale results and the tech sector was under pressure after Taiwan Semiconductor forecast its deepest decline in revenue in a decade.  There was also caution, as there were news that US lawmakers introduced bills on Wednesday that would ban the sale of US ships or other components to Huawei Technologies Co Ltd or other Chinese telecoms that violate US sanctions or export control laws.  This came shortly before Wall Street Journal reported that federal prosecutors were investigating allegations that Huawei stole trade secrets from US businesses.    On Friday Asian stocks rose across the board and European shares opened higher reaching their highest level since early December on new hopes of the trade China – US trade negotiations.   Stock markets from Wall Street to Asia were lifted.   Trade-exposed sensitive indexes or stocks gained the most.

Malta: Inbound Tourism –  November 2018

For November, total inbound visitors were estimated at 177,000 which is an increase of 5.9 percent over the November 2017.  For holiday purposes, a total of 145,630 inbound tourist trips were carried out, while a further 20,258 were undertaken for business purposes.  Inbound tourism from the EU went up by 6.2 per cent to 149,537 when compared to the corresponding month in 2017.  40.2 percent on inbound tourists were aged between 25 and 44, while those within the 45-64 age were 35.4 per cent.  Total tourist expenditure was estimated at EUR 123.5 million, an increase of 2.6 percent over November 2017.

Malta:  Sea Transport Between Malta and Gozo (Q4/2018)

During the fourth quarter of last year, a total of 1,321,429 passengers travelled between Malta and Gozo, an increase of 5.4 percent when compared to the fourth quarter of 2017.  Meanwhile, the highest number of passengers was recorded in October at 494,964, while the number of vehicles increased by 8.9 percent, to a total of 398,596.

Malta:  Harmonised Index of Consumer Prices (HICP) – December 2018

In December 2018 the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 1.2 percent, down from 1.4 percent in November 2018.  The largest upward impact on annual inflation was measured in the Food and Non-Alcoholic Beverages Index, while the largest downward impact was recorded in the Education Index.  The Harmonised Index of Consumer Prices measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services.

Oil

Oil prices fell by 1 percent on Monday, with Brent crude falling below $ 60 per barrel, after Chinese data showed weakening imports and exports.  China is the second-largest crude oil consumer.    Although there was weak trade data from China, the country’s oil imports remained near record level in December at 10.31 million barrels per day.  Oil prices fell by 2 percent on Thursday after US crude production reached an unprecedented 12 million barrels per day.  Concerns over weakening demand grew amid the trade dispute between the United States and China.  Brent crude oil futures were down at $60.24 a barrel while US crude futures fell to $51.23.   Data from the US Energy Information Administration shows that US output has climbed by 2.4 million bpd since January 2018 and stockpiles of crude and refined products have risen sharply.

Company News

• Morgan Stanley

Morgan Stanley (MS) reported lower than expected quarterly profit on Thursday as fixed income trading fell, amid increased volatility at the end of the fourth quarter.  The bank’s bond trading results were in line with other Wall Street Rivals, which reported declines in revenue of between 15 percent and 21 percent.  MS’s total sales and trading net revenue fell 7 percent to $2.49 billion, for the last quarter of 2018.  Fixed income revenue fell 30 percent to $564 million while equity revenue was flat.  Net income applicable to Morgan Stanley jumped to $1.53 billion or 80 cents per share in the fourth quarter of 2018.

• Citigroup Inc

On Monday Citigroup Inc reported a surprise drop in quarterly revenue due to a steep decline in its fixed income trading business, effected by the volatility in financial markets at the end of the year.  Fixed income revenue fell 21 percent in the quarter due to widening credit spreads.  The bank ended the year with an efficiency ratio of 57.4 percent, just short of its 57.3 percent goal.  A lower efficiency ratio means a bank is better at managing its overhead expenses as a percentage of revenue.  Although the bank missed its efficiency goals, Citi exceeded its target for returns on tangible common equity (ROTCE), which is a widely watched measure of how well banks use shareholder money.  Citi reported 10.9 percent ROTCE topping its goal of 10.5 percent.

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