“A Difficult Week Of Talks …”

A Difficult Week Of Talks

Since July 2018 the world’s two largest economies, the United States and China have been involved in a tit-for-tat tariff war as the US demands that China adopt policy changes that would among other things better protect American intellectual property and make China more accessible to US companies.  Donald Trump’s Sunday tweet that he was set to raise tariffs on China from 10 percent to 25 percent on Friday if a trade deal isn’t reached, sent the markets reeling.  According to US officials, China has backtracked on substantial commitments made during months of negotiations whose purpose was to end the trade war.  Fears about the negotiations drove global stocks and oil prices lower on Monday and there was speculation that China could cancel the Chinese Vice Premier Liu He visit which was scheduled for Tuesday to the US.  China’s Commerce Ministry confirmed that Liu who the leads the talks for Beijing, will visit the United States on Thursday and Friday.  On Wednesday Trump said that China “broke the deal” it had reached in trade talks with the US and vowed not to back down on imposing new tariffs of Chinese imports unless Beijing “stops cheating our workers”.   Trump accused Beijing of breaking the deal and that Beijing would pay if no agreement is reached.  Trump’s comments fuelled selling in the Asian markets.  Trump whose policy was part of his “America First” agenda warned China on Wednesday that it was mistaken if it hoped to delay a trade deal until a Democrat controlled the White House.    To retaliate Beijing announced it will raise tariffs.  White House Press secretary Sarah Sanders said that the Trump administration had received an “indication” that China wants an agreement.  After her comments, the US stock indexes rebounded slightly from this week’s earlier losses, but the S&P 500 and NASDAQ closed in negative territory amid caution over trade and some disappointing earnings.  US President Donald’s Trump tariff increase to 25 percent on $200 billion worth of Chinese goods took effect on Friday, and Beijing said it would strike back.  The hikes come in the midst two days of talks between top US and Chinese negotiators to try to rescue a failing deal after 10 months of trade war.  

New Sanctions On Iran

US President Donald Trump on Wednesday imposed new sanctions on Iran, targeting revenue from its exports of industrial metals.  The executive order issued by Trump covers Iran’s iron, steel, aluminium and copper sectors, the government’s largest non-petroleum-related sources of export revenue and 10 percent of its export economy, a White House Statement said.  Trump said, “Tehran can expect further actions unless it fundamentally alters its conduct.”   The executive order bans entities from the purchase, acquisition, sale, transport or marketing of those minerals and their products from Iran or face sanctions.  It also says that any individuals and entities would be subject to US sanctions if they knowingly engaged in a significant transaction for the sale, supply, or transfer to Iran of significant goods or services used in connection with those industrial metal sectors.

New Zealand

New Zealand Central bank cut its benchmark interest rate for the first time in two-and-a-half years on Wednesday and signalled the chances of lower rates in the future. The New Zealand dollar hit its weakest in half a year after the country’s central bank cut interest rates to record lows.  In a press conference after the decision, the Governor flagged the ongoing US-China trade dispute as a major risk for the New Zealand economy.

Malaysia Central Bank

On Tuesday Malaysia’s Central Bank became the first in Southeast Asia to cut its key interest rate this year.  The purpose of the move is to support the economy amid concerns of a slowdown in global growth.  Bank Negara Malaysia cut its overnight policy rate by 25 basis points to 3 percent.  The first interest rate cut by the Malaysian Central bank since 2016 is a reflection of the global interest rates and the monetary policy of other central banks in the last six months.

Egypt’s Headline Inflation

Egypt has been carrying out an IMF-backed economic reform programme since 2016 which saw inflation rise to 33 percent the following year.  It has since subsided but rising fruit and vegetable prices have prolonged inflationary pressures.   Egypt’s annual urban consumer price inflation eased to 13 percent in April from 14.2 percent in March, said official statistics agency CAMPAS on Thursday.   CAMPAS said urban food and beverage prices saw a rise of 13 percent year-on-year and 0.5 percent month-on-month.  Urban inflation rose 0.5 percent month-on-month in April, said CAMPAS down from 0.8 percent in March.  Many people in Egypt, which is the most populous country in the Arab world, live below the poverty line and many struggle to meet basic needs after successive increases in the prices of vegetables, fruit, fuel and medicine.

China’s Policy Easing

In April Chinese banks throttled back new lending, after a record first quarter that fuelled fears of more bad loans.  Many however are closely watching how much support Beijing will inject to increase growth.  Prior to the concerns over the trade deal between the US and China, the Chinese economy was beginning to show tentative signs of stabilizing after growth-boosting measures.  The central bank said that on Thursday Chinese banks extended 1.02 trillion yuan in net new yuan loans in April, below the March’s figures of 1.69 trillion yuan.  TSF growth, which is a rough gauge of credit conditions, shows that the growth of outstanding total social financing, a broad measure of credit and liquidity in the economy, slowed to 10.4 percent from a year earlier and from 10.7 percent in March.  Meanwhile, the People’s Bank of China (PBOC) said on Monday that it will cut the RRR (the reserve requirement ratios) for some small and medium-sized banks, in the latest move to help small firms struggle amid the economic slowdown.

The European Commission

The European Commission revised down the euro area growth forecasts and cut its already gloomy outlook on Italy.  According to the European Commission the euro zone economy will rebound next year from a slow-down in 2019 and unemployment will fall further, but inflation is likely to stay at this year’s levels and below the European Central Bank’s target.  It forecasts domestic euro zone growth of 1.2 percent this year, slower than the 1.3 percent it predicted in February.  The deterioration in the trade talks between the US and China led investors to buy safe haven assets on Monday and pushed the yields down to give week low of -0.04 percent for the German government bonds.  Other core bond yields in the EU were also around three basis points lower.  The Commission cut Italy’s growth forecast to 0.1 percent, down from 0.2 percent and said the country’s deficit could widen further beyond the 3 percent ceiling set by the European Union.  Italy’s government bond yields initially rose to 2.6 percent before reaching 2.58 percent.  The German/Italian bond yield spread, widened to its most since 26th April at 263 basis points. Italian shares fell into negative territory with the banking index lower by 1.7 percent.  The European Commission said that with no changes in the government’s spending policies, the country’s deficit is set to grow to 2.5 percent of output this year and climb to 3.5 percent in 2020 beyond the 3 percent ceiling set by the EU fiscal rules.  Meanwhile, Italian Prime minister Giuseppe Conte said the forecasts were ungenerous and “prejudiced” because they assumed Italy would post no further growth this year after it emerged from recession with a stronger than expected first quarter.

Brexit And The Pound

Brexit talks resumed on Monday between the British government and the main opposition party, leaving the pound stuck near $1.31 level.  May agreed on a withdrawal deal with the EU last year, but was rejected three times by a divided British parliament.  Since Britain last month pushed its scheduled departure from the European Union back from March until 31st October sterling had traded in a narrow range of $1.28 to $1.31.

Germany’s Industrial Orders

Germany’s 10-year bond yields hovered near the zero percent mark on Tuesday as industrial orders from Europe’s largest economy improved slightly, but not enough to encourage investors to leave the Eurozone government bonds.  The March figures marked an end to two months of steep declines but were weaker than expected pointing to a lacklustre growth.  The main focus of concerns on the eurozone economy was Germany’s export-oriented economy, which has had a rough few months and could be the line of fire if President Donald Trump turns his attention to Europe in his efforts of trade relations with the world.

Reserve Bank Of Australia

The Reserve Bank of Australia held interest rates at a record low, raising expectations it may ease policy following a weaker than expected reading of inflation.  The Aussie rallied as much as 0.8 percent to $0.7048 after the news.  Central banks across the globe have increasingly turned dovish in 2019, raising expectations that policymakers would ease monetary conditions.

China’s April Exports

China’s exports unexpectedly shrank in April but imports experienced their first increase in five months.  Customs data on Wednesday showed that exports fell 2.7 percent from a year earlier, while imports beat expectations with a 4 percent rise year-on-year more than analysts’ forecasts for a 3.6 percent fall and the 7.6 percent drop in March.  The gain which is the first since November, suggests that domestic demand is starting to increase, as Beijing increases stimulus such as higher spending on roads, railways and ports.  Imports of copper which is widely used in construction and manufacturing rose from March but were down on the year.  China had an overall surplus of $13.84 billion in April, smaller than forecasts of $35 billion.  Meanwhile, its trade surplus with the US widened to $21.01 billion in April, from $20.5 billion in March.  China’s imports from the US fell nearly 26 percent while exports to the US fell just over 13 percent.

Currency Roundup

The offshore yuan on Monday was on course for its worst daily drop in 10 months, briefly touching a four-month low of 6.8218 after Trump’s threat, later erasing most of those losses.  The safe-haven yen added 0.1 percent to 110.665 yen after briefly touching a five-week high on Monday.  Meanwhile the euro slipped marginally to $1.1195.  On Wednesday growing fears about the impact of a worsening US-China trade conflict on global growth lifted the safe-haven Japanese Yen to a six-week high against the dollar.  On Thursday the dollar hovered near a six-week low versus the yen, and weighed down against the safe-haven Japanese Yen, as risk aversion hit in after amid concerns that the US-China conflict could escalate.  The dollar stood at 109.91 yen after going low as 109.70 overnight, which is its weakest since 25th March.  The Japanese yen is an attraction in times of market turmoil.  The Australian dollar touched a four-month low of 76.55 yen having shed roughly 1.8 percent against the yen this week.  The euro struggled near a four-month trough of 122.89 yen having weakened more than 1 percent this week.  The dollar index against a basket of major currencies was little changed at 97.612.DXY.  On Thursday the British pound was little changed around $1.30 amid doubts that Brexit negotiations between the ruling Conservative and opposition Labour parties would lead to nowhere.  Pressure on Theresa May to name a departure date is also weighing on the pound.

Oil Prices

Oil prices fell on Monday after US President Donal trump said he would sharply raise tariffs on Chinese goods, risking for the trade talks to derail between China and the US.  Concerns about the demand for global oil climbed.  Furthermore, within the oil industry, there are signs of a further rise in output from the United States, increasing crude production by more than 2 million barrels per day since early 2018 to a record of 12.3 million bpd.  The United States is now the largest oil producer worldwide ahead of Russia and Saudi Arabia.  Meanwhile on Tuesday oil prices closed at their lowest in over a month on renewed doubts over the US-China trade deal and the impact on global growth and on expectations that US crude stockpiles could hit fresh 19 month-highs.   On the supply side oil markets remain tense with the United States tightening sanctions on Iranian oil exports and plans to bulk up its forces in the world’s top oil-exporting region.  On Wednesday the Energy Information Administration said that US crude stockpiles fell unexpectedly last week and strong gasoline demand could point to additional drawdowns in the coming weeks as the driving season approaches.  The drawdown in crude stocks came as refineries cut back output and 900,000 barrels were added to supply through the release from the US Strategic Petroleum Reserve.

Markets Wrap

US Treasury yields held at lower levels in early US trading on Monday, as investors favoured low risk government bonds over stocks and risky assets due to the trade tensions between the US and China.  After President Trump’s tweet to increase tariffs on $200 billion of Chinese-made goods to 25 percent from 10 percent, reversing his decision to hold them at 10 percent, Wall Street was expected to open lower on Monday.  Meanwhile, Monday’s drop in bond yields was mitigated by the US Treasury’s supply of selling $84 billion in coupon-bearing debt.  This week stock markets sank and oil prices tumbled.  Emerging markets fell on Monday on trade conflict and the MSCI index for emerging market stocks fell 1.5 percent as investors ran to safety for gold and bonds and other less risky assets.  Meanwhile, Japanese financial markets remained closed until Tuesday for a national holiday, but Nikkei 225 futures dropped 1.6 percent.  World shares continued with their slide for a fourth day running on Thursday after a warning from US President Donald Trump that a long-worked on trade deal with China was in series danger.  Meanwhile, Europe’s main stock market sank almost immediately after an intense day for Asia that battered 1.8 percent of China and more than 3 percent off South Korea.  Japan’s Topix index closed 1.4% lower with automakers weighing most heavily on the gauge.

Malta – Inbound Tourism March 2019

The total number of inbound travellers for March were estimated at 172,971 which is an increase of 3.5 percent when compared to the corresponding month in 2018.  Total number of inbound trips carried out for holiday purposed amounted to 145,814, whilst a further 16,748 were undertaken for business purposes.  Meanwhile, total tourist expenditure was estimated at EUR 116.5 million, an increase of 0.5 percent over the corresponding month in 2018.    For the January to March 2019 period inbound tourist trip for the first three months of 2019 amounted to 425,892 an increase of 2.8 percent over the same period in 2018.  Total tourism expenditure was estimated at EUR 272.40 million which is 0.3 percent higher than that recorded for 2018.  Total expenditure per capita stood at EUR 640 which is a decrease of 2.3 percent when compared to 2018.

Index Of Industrial Production – March 2019

In March 2019, seasonally adjusted industrial production decreased by 3.5 percent over the previous month. The declines were registered in the production of capital goods (5.7 percent), consumer goods (4.8 percent) and energy (2.4 percent).  The production of intermediate goods increased by 0.3 percent.   When compared to March 2018, the index of industrial production adjusted for working days decreased by 3.3 percent.  Declines were registered in the production of consumer goods (8 percent), capital goods (6.5 percent) and intermediate goods (3 percent).  The production of energy increased by 17.7 percent.

Antonella Mercieca

Client Relationship Manager


Bloomberg, Reuters, https://nso.gov.mt


May 10th, 2019

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