“Angela Merkel’s Future…”

Angela Merkel’s Future

German Chancellor Angela Merkel confirmed on Monday she would not seek re-election as chairwoman of her Christian Democratic Union (CDU) in December, starting the beginning of the end of her 13-year era in European politics. She told reporters that at the next CDU congress in Hamburg she will not put herself forward again as candidate for the CDU chair, drawing the consequences of setbacks for the CDU in a regional vote on Sunday. Her decision to give up the CDU chair came a day after a regional election in the western state of Hesse saw support for the conservatives’ slump by 11 percentage points. Since being on the European stage since 2005, she helped guide the EU through the euro zone crisis and opening Germany’s doors to migrants fleeing war in the Middle East in 2015 a move that still divides the bloc and Germany.

UK – Budget Day

On Monday Chancellor Philip Hammond delivered his annual budget statement to parliament. He sought to change the tone about tax and spending a decade after the financial crisis, as he announced tax cuts for households and the easing of welfare curbs for poorer working families. He also took aim at big tech firms such as Google, Facebook and Amazon with a new sales levy. In his budget plan before Brexit in five months’ time, Hammond tried to help May overcome resistance in her party about how close Britain should stay after Brexit to the bloc that buys nearly half of its exports. Hammond announced a new tax on the revenues of large tech firms from 2020 which would raise 400 million pounds a year. On income tax, Hammond brought forward by a year, a higher threshold at which workers start to pay tax and also raised the level at which a higher rate kicks in. Despite surprisingly strong tax receipts, and a modest upgrade to the growth rate of the economy, Hammond announced only a relatively small fall in Britain’s borrowing needs between now and mid-2020s. The budget deficit is set to fall to 1.2 percent of gross domestic product in the current financial year, down from a forecast in March of 1.8 percent, he told parliament.

Brexit

The Times newspaper reported a tentative deal had been reached on all aspects of a future partnership on services as well as the exchange of data. Upon the news, the pound jumped, extending gains reached in early trade to reach $1.2914. Britain is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. Almost EUR 6 trillion of Europe’s financial assets are managed in London and the city dominates Europe’s EUR 5.2 trillion investment banking industry. Since the Brexit vote two years ago, some of the world’s most powerful finance companies in London have been trying to preserve the existing cross-border flow of trading after Brexit.

Bank Of England Meeting

The Bank of England kept interest rates on hold on Thursday and hinted a slightly faster future rate rise in borrowing costs if Brexit goes smoothly, but warned all bets were off if next March brought a “disruptive” EU departure. The BOE said a disruptive Brexit could see inflation pressure from a weaker currency, a damaged supply chain and possible trade tariffs, suggesting it might have to raise rates. It also said that assuming Brexit goes smoothly, the economy was likely to continue to grow by around 1.75 percent a year. The BOE said that the nine rate-setters voted unanimously to hold interest rates at 0.75 percent. The pound extended its gains against the US Dollar after the announced policy.

Growth In France

Growth in France picked up by less than expected in the three months to September despite a rebound in consumer spending, according to data released on Tuesday. The French economy which is the EU’s second biggest economy grew 0.4 percent in the third quarter up from 0.2 percent in the previous three months as stated by INSEE, the statistics agency. Household spending which traditionally is the motor for growth grew 0.5 percent in the third quarter after falling 0.1 percent in the previous three months due to strikes that hit spending in transport. Business investment accelerated slightly to 1.4 percent in the quarter as firms responded positively to the pro-business reform approach applied by President Emmanuel Macron. Household investment, particularly new home purchases has also declined. Meanwhile, export growth outpaced that for imports.

Italy’s Rating By Standard & Poor’s

S&P on Friday left Italy’s rating at BBB, two notches above junk, but lowered its outlook to negative from stable, stating that the new government’s policy plans were weighing on the country’s growth and debt prospects. The decision to leave the rating unchanged, a week after Moody’s downgraded it, brought some relief to the bond market that is hurt by the spending plans of the new government in Rome, tension with the European Union and heightened concern about the implications for the country’s ratings. Italy’s 10 year bond yield fell to a one-week low at 3.33 percent while the yields on most other Eurozone peers were high on the day as the European stock markets shifted off the shine from the fixed income markets. The fall in Italian bond yields narrowed the gap over the top-rated German bond yields to 299 bps from around 306 bps late Friday. Outside Italy, most 10 year bond yields were up 1-2 bps on the day amid the recovery in the Italian markets and the broader European markets.

Eurozone Inflation

Statistics released by Eurostat estimated that consumer prices in the 19 countries sharing the euro, rose 2.2 percent year on year this month after a 2.1 percent increase in September and 2 percent gain in August. Over the medium term, the European Central Bank wants to keep price growth below and close to 2 percent. In view that inflation has been far below that target, the bank engaged in buying bonds on the secondary market to inject more liquidity into the banking system to fuel credit and faster price growth. Now that inflation has accelerated, the ECB plans to end the programme at year end and data released in October appears to support that decision. According to Eurostat, energy prices jumped 10.6 percent year on year in October while unprocessed food was 2.1 percent more expensive.

US Restricts Exports To Chinese Semiconductor Firm Fujian Jinhua

On Monday President Donald Trump’s administration cut off a Chinese state-backed chipmaker from US suppliers, amid allegations, that the firm stole intellectual property from US semiconductor company Micron Technology Inc. The Commerce department said it had put Fujian Jinhua Integrated Circuit Co Ltd on a list of entities that cannot purchase components, software and technology goods from US firms. The action against Fujian Jinhua is likely to ignite new tensions between Beijing and Washington since the company is at the heart of the “Made in China 2025” program to develop new high-technology industries. Fujian Jinhua makes so-called DRAM, the memory chips that make computers, phones and other devices run more quickly and smoothly.

US Weekly Job Claims

The Labour Department said on Thursday that initial claims for state unemployment benefits dropped 2,000 to a seasonally adjusted 214,000 for the week. New applications for US unemployment aid fell last week and the number of Americans receiving benefits was the lowest in more than 45 years as Labour market conditions tightened further.

China’s Factory Growth

China’s manufacturing sector in October expanded at its weakest pace in over two years, hurt by slowing domestic and external demand. This is an indication that the economy is feeling the impact of the intensifying trade war with the United States. The Official Purchasing Managers’ Index (PMI), which gives global investors their first look at business conditions in China fell in October to 50.2, the lowest since July 2016 and down from 50.8 in September. It was a touch above the 50 point mark that separates growth from contraction.

China’s Industrial Profits Growth Slows

Profit growth at China’s industrial firms slowed for the fifth consecutive month in September as sales of raw materials and manufactured goods fell pointing to a cooling domestic demand in China. The slowdown is in line with data released last week that showed September’s factory output grew at the weakest pace since February 2016. Industrial profits rose 4.1 percent in September from a year earlier to 545.5 billion yuan, said the National Statistics Bureau. This was less than half of the pace in August and the slowest since March. Data last week showed the Chinese economy in the third quarter grew at the weakest pace since the global financial crisis as manufacturing output slowed. Furthermore, the manufacturing sector has also been effected by a reduction in sources of credit amid Beijing’s multi-year crackdown on corporate debt and risky lending practices. Authorities are taking steps to ease the pressure on firms facing liquidity issues, as many companies still face difficulty in obtaining funding. Interest rates have also increased due to the reduced supply of credit.

Japan’s Central bank Meeting

The Bank of Japan left its policy on interest rates and asset-purchase targets unchanged, while forecasting that inflation will remain below its 2 percent target until at least early 2021.

Currencies

After the report that German Chancellor Angela will not seek re-election as party chairwoman the euro briefly weakened on Monday. The euro fell 0.4 percent to hit a day’s low of $1.136 after the senior party sources made the announcement. The currency later recovered to trade flat on the day at $1.14. The dollar rose towards a 10 week high against a basket of other currencies as concerns about global growth hit the markets. The duelling tariffs imposed by the United States and China have lifted the dollar. The market has assumed that while the US economy will be hit by reduced trade, it will be hurt less than its trading partners. Meanwhile, on Monday the pound fell 0.1 percent to $1.2817 close to a two-month low of $1.2777 which touched last week. Against the euro, the pound traded flat at 88.88 pence per euro. Meanwhile, as the global markets headed for their worst months in a decade and the bond market volatility surged to more than four-month highs, the risk has left the exchange market largely unmoved. Currency volatility, while rising, is no higher than it was in August and remains far below the average levels between 2015 and 2017. Deutsche Bank’s currency volatility Index has increased to 7.99 from 7.66 on 1st October. On Wednesday the dollar edged up to a 16 month high against a basket of key currencies amid the economic strength of the US economy. The euro slipped 0.26 percent against the dollar, while the dollar climbed 0.08 percent against the Japanese Yen with both currencies shedding more than 2 percent in October. Not so stellar economic news from the euro region has weighed on the euro, while Brexit worries have hurt the British pound. The dollar, however enjoyed a boost from robust economic reports. The ADP national employment report released on Wednesday showed that the US private sector payrolls increased by the most in eight months in October, suggesting overall job growth accelerated in October after Hurricane Florence weighed on restaurant and retail employment in September.

Market Recap

On Monday, European shares and Wall Street climbed and were set for a stronger open, thanks to a surge in autos stocks and an S&P ratings relief that lifted Italy’s bond market. Europe’s auto sector jumped 4.9 percent set for its strongest day since August 2015, after a report that China was considering halving the tax on car purchases in an attempt to boost demand for autos which has been negatively affected by a trade war and slowing economic growth. The DAX jumped 2.1 percent boosted by carmakers BMW, Daimler and Volkswagen while the leading index of euro zone stocks increased by 1.5 percent. Italy’s FTSE MIB led the market with an increase of 2.4 percent after the decline in Italy’s bond yields. Italian banks stocks were up as much as 4.5 percent, which is set for their strongest gain since 10 September. The MSCI world equity index, that tracks shares in 47 countries extended early gains to rise 0.4 percent. The index is down 9.3 percent so far in October and has shed $6.7 trillion in market capitalization since its January peak. Overnight Asia stock trading was dampened by China’s blue chip index which tumbled more than 3.3 percent. Chinese data showed a cooling economy as profit growth at its industrial firms slowed for the fifth consecutive month in September due to diminishing sales of raw materials and manufactured goods. US stocks fell in a volatile session, with the benchmark S&P 500 Index ending close to confirming its second correction of 2018, hurt by refreshed worries over the trade tensions between the US and China and a sharp drop in the technology and internet shares. A Bloomberg report said that the US is preparing to announce tariffs on all remaining Chinese imports by early December should the talks between presidents Donald Trump and Xi Jinping falter. Major technology and growth stocks such as Amazon.com, Google parent Alphabet and Netflix Inc posted sharp declines. The S&P 500 technology sector fell 1.8 percent. On Tuesday the rebound that started with the US markets has spread through Asia and to European markets. The MSCI Asia Pacific Index gained 1.6 percent while Japan’s Topix closed 2.2 percent higher. In Europe the Stoxx 600 Index was 1.4 percent higher. Some strong corporate results helped the rebound. Meanwhile on Wednesday, US stocks rose for a second day due to strong results from General Motors and a host of others. Investors also pounced on their favourite technology stocks. Although the S&P was on track to post its first two-day gains for the month on Wednesday, it is still set for its worst monthly performance in more than seven years. The NASDAQ was on pace for its worst monthly loss since November 2008.

Oil

Oil prices slipped on Tuesday, over concerns that the US-China trade dispute will impact economic growth and an increase in global supply, despite upcoming sanctions against Iran. Benchmark Brent crude oil was down 15 cents a barrel at $77.19. US light crude was unchanged at $67.04. The international Energy Agency said on Tuesday high oil prices were hurting consumers and could dent fuel demand at a time of slowing global economic activity. Oil is under pressure from rising output by the world biggest producers, Russia, the United States and Saudi Arabia which is helping to replenish global oil inventories after more than a year of stock draws.

Company News

Eni

Italian oil major Eni said on Monday that it had struck a deal to team up with Total, its French peer to look for oil and gas in Algeria and strengthen its position in the North African country. The two oil companies signed a deal with state-owned Algerian energy giant Sonatrach to pursue offshore exploration in the country while working together on exploration permits. Eni has been operating in Algeria since 1981 and has strategic contracts with Sonatrach to import around 20 percent of Italy’s gas. With strong output potential in Libya and Egypt, it is looking to help create a gas hub in the Eastern Mediterranean area.

General Electric

On Tuesday GE reported a $22.8 billion loss for the third quarter largely due to a write-down in the value of its GE Power Business. GE said the power business also lost $631 million in the quarter. Overall GE posted a loss of $2.63 a share compared with a 16 cents profit a year ago whilst revenue declined by 4 percent to $29.6 billion. GE’s revenue and profits declined over the years in part as GE pulled back from finance and other businesses. The 126-year-old conglomerate was once the most valuable US Corporation but has slimmed down to focus on jet engines, power plants and renewable energy. GE said it would separate its gas turbine and services business from other parts of the power unit.

British Petroleum

British Petroleum profits increased to a five year high, boosted by stronger oil prices with production set to rise further thanks to the $10.5 billion acquisition of BHP Billiton’s shale business. The increase in oil prices which is at the highest since late 2014 has boosted the revenue for oil companies such as BP. BP’s third quarter underlying replacement cost profit, the company’s definition of net income rose to $3.8 billion, while a year earlier profit amounted to $ 1.86 billion and $ 2.8 billion in the second quarter of 2018. The increase in profits came about as production in the first nine months of the year increased thanks to new fields and high oil and gas field reliability. Oil and gas production for the first nine months of the year increased to 2.5 million barrels of oil. BP launched nine major oil and gas fields over the past year, in Azerbaijan, Oman, Egypt and Angola that will help boost production by 900,000 barrels of oil equivalent per day by 2021.

Malta: Government Expenditure On Social Security Benefits: January-September 2018

Social Security benefits expenditure amounted to EUR 726 million during the first three quarter of 2018, with an increase of 3.2 per cent from 2017. A EUR 23.1 million increase in Contributory Benefits outlay proved to be the main reason for the rise.

Malta: Industrial Producer Price Indices

In September 2018, the industrial producer price index registered an increase of 3.85 per cent when compared to the same month last year. This was due to a rise of 8.27 percent in the intermediate goods sector, 1.49 percent in consumer goods and 0.12 percent in capital goods sector. There were no price changes registered within the energy sector

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