“Brexit – Deal or No Deal?…”

At what was supposed to be the “Brexit summit” on Thursday, the EU delivered an ultimatum: it said it was concerned by a lack of progress and called on London to make concessions or brace for a messy Brexit on Dec. 31.

Prime Minister Boris Johnson had set a deadline of the 15th October EU summit for agreeing a trade deal with the European Union. However, EU chief Brexit negotiator Michel Barnier wanted a few more concessions from Britain before entering this last phase of negotiations.

Britain’s chief negotiator, David Frost, said he was disappointed and surprised that the EU was no longer committed to working “intensively” for a deal.  “Surprised by suggestion that to get an agreement, all future moves must come from UK,” said Frost.  “It’s an unusual approach to conducting a negotiation.”

The United Kingdom formally left the EU on 31st January this year, but the two sides are haggling over a deal that would govern around $900 billion in annual trade. This is known as the transition period, which ends on 31st December.  Johnson will ultimately have to make the final call on whether to accept a narrow trade deal or go for a more tumultuous no-deal that could be blamed on the EU.  He has repeatedly said that his preference is for a deal, but that Britain could make a success of a no-deal scenario, which would throw the $900 billion in annual bilateral trade into uncertainty.

Later today Johnson will give Britain’s response to the European Union’s demands.

Market Wrap

The start of the week saw Italian and Greek government bonds hitting all-time lows reflecting a slower than expected economic recovery in Europe.  Italy sold 7.5 billion euros worth of bonds while placing a new three-year bond with a -0.14% gross yield, the lowest rate ever.  Italian 10-year bond yields fell to a new record low at 0.634%, while Portugal and Spain’s 10-year yields are also heading closer to negative territory, currently both at around 0.14%

The much anticipated auction of Southern European bonds also came to a halt on Friday, with Italy’s 10-year yield down 2 basis points to 0.68%.  Portugal raised 1 billion euros from the auction, which included eight-year bonds pricing at a negative yield, the first time it has achieved a sub-zero yield on a maturity longer than six years.

German 10-year bond yields fell to their lowest since mid-May at -0.58%, down 2 basis points on the day.  Germany also saw strong demand for re-opening a 30-year bond, which raised 897 million euros at a bid-cover ratio of 2.4-times.

Analysts expect Thursday’s sell-off to be temporary, given that the bond rally that pushed Italian borrowing costs to record lows was due to investors expectation of additional stimulus from the European Central Bank, of which Italy would be a leading beneficiary.

Elsewhere, Global equity markets remained cautious in light of diminishing hopes for a COVID-19 vaccine or U.S. fiscal stimulus after Johnson & Johnson said on Tuesday it is pausing a clinical trial of a coronavirus vaccine and Eli Lilly and Co also paused a coronavirus antibody treatment.  British drug maker AstraZeneca Plc’s U.S. trial for a vaccine has also been on hold for over a month.

European shares bounced from two-week lows on Friday but were still set for weekly losses after a sell-off that was marked by fears of a second wave of COVID-19 infections, Brexit-related uncertainty and doubts about more U.S. fiscal stimulus.  The pan-European STOXX 600 index was up 0.7% after posting its worst session in more than three weeks on Thursday.  London stocks rose about 1.0% in early trading, but were still on course to snap a two-week gaining streak.

Asian stocks also fell on Friday, as a resurgence of coronavirus infections in Europe and the United States hurt risk appetite.  MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.22%.   Australian stocks fell 0.72%. Japanese stocks shed 0.49%, and South Korean shares lost 0.98%.

Oil futures extended declines in Asian trade as another round of lockdowns to contain the spread of the coronavirus threatens to further weaken global energy demand.

On Wall Street, the Dow Jones Industrial Average fell 0.07%, the S&P 500 0.15% and the Nasdaq Composite dropped 0.47%. 

Spot gold  fell 0.22% to $1,904.53 an ounce.

Currency Roundup

Sterling

Sterling edged lower against the dollar on Monday but hopes for a Brexit deal kept the currency above the key $1.30 level at $1.3021.  Against the euro, it was flat at 90.69 pence.  By Friday though, the U.S. dollar was trading at $1.2893 against sterling, down 0.17% while sterling was steady against the euro at $1.30 and at 90.23 pence.

Yuan

China’s yuan reached a 17-month high last Friday gaining around 6% against the dollar since late May Monday, however, saw the onshore and offshore yuan both falling 0.8%.  The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.82, firmer than the previous day’s 94.63.

AUS dollar

The Australian dollar dropped to a one-week low after the head of the central bank hinted of a possible rate cut or bond purchases.  The Aussie dollar fell nearly 1% to a one-week low of 0.7096 per U.S. dollar. It also fell against the New Zealand dollar and the Japanese yen by 0.5% and 0.8% respectively.

US dollar

The U.S. dollar index was steady, having seen its biggest loss in six weeks last Friday.  With the Nov. 3 election only weeks away, investors are betting that Democrat Joe Biden is more likely to win the U.S. presidency and offer a larger economic package.

The dollar index was up 0.1% on Monday, having almost completely reversed its recovery at the end of September.  It held recent gains on Wednesday, at $1.1743 per euro, a 0.6% gain from the previous session.   By Friday it stood at 93.819, close to a two-week high.  The one currency that the dollar fell against was the yen, which strengthened 0.22% to 105.24 per dollar. The U.S. dollar index traded at 93.47 =USD, close to a one-week high, though most major currencies were steady in early European trading

Euro

On Monday the euro was down 0.2% on the day at $1.1803, while on Wednesday it dropped 0.1% against the dollar, at 1.17360 and remained little changed at $1.1704 by the end of the week. 

Other currencies

The yen was up 0.1% against the dollar at 105.54 on Monday and the same again on Wednesday.  The Swiss franc rose around 0.1% versus the dollar on Wednesday while the Norwegian crown was up around 0.2% against the dollar, at 9.234

Oil

U.S. energy companies Chevron Corp, Royal Dutch Shell Plc and BHP Group began returning to work on Sunday, two days after Hurricane Delta hit the Gulf of Mexico.  The U.S. Bureau of Safety and Environmental Enforcement (BSEE) said 8.8 million barrels (91%) of offshore crude oil production and 8.3 billion cubic feet (62.2%) of natural gas output remain closed.

Oil prices strengthened on Wednesday, as OPEC and its allies were seen complying with a pact to cut oil supply in September.  The Organization of the Petroleum Exporting Countries’ conformity with the oil output reduction in September was 105%, while non-OPEC compliance was 97%.

Brent crude futures for December delivery were up 87 cents at $43.32 a barrel while U.S. West Texas Intermediate futures also traded higher, up 84 cents at $41.04 a barrel.

By the end of the week oil prices were weighed by concerns about the coronavirus and its impact on the world economy. Brent crude futures fell 1.11% to $42.68 a barrel, while U.S. crude futures slipped 1.1% to $40.51 a barrel.

EU / U.S. Trade dispute

European Union is set to win the right to impose tariffs on $4 billion worth of U.S. goods in retaliation for subsidies granted to plane maker Boeing.

The decision threatens to enhance transatlantic trade tensions with just three weeks until the U.S. presidential election.  Both the United States and the EU have finally shown interest in settling the 16 year dispute over subsidies provided to their respective plane makers, Boeing and Airbus. Tuesday’s decision, delayed by the COVID-19 pandemic, follows a WTO ruling last year allowing Washington to impose tariffs on EU goods over state support for Airbus, which has sites in Britain, France, Germany and Spain.

Combined, the two cases represent the world’s largest ever corporate trade dispute.

The European Commission has said it would prefer a negotiated solution but would impose tariffs without one.  It has already drawn up an extensive list of U.S. products it could target including wine, spirits, suitcases, tractors, frozen fish, and a range of agricultural produce from dried onions to cherries.

European sources have said the EU could also add tariffs on further U.S. products left over from an earlier WTO case.

Asia-Pacific travel

Countries including Singapore, Australia and Japan are gradually easing some international travel restrictions as coronavirus cases slow, in hopes of helping to revive their economies.

International travel in Asia has collapsed during the pandemic due to border closures, with passenger numbers down 97% in August, according to the Association of Asia Pacific Airlines.

Although European countries add fresh travel restrictions as cases rise, in Asia the trend is the opposite.

For now, few people are likely to travel because of testing and insurance requirements, and in some cases the need to quarantine upon return home. 

A Singapore-Indonesia deal announced on Monday for essential business and official travel will require an application and COVID-19 swab tests both before and after travel.  Singapore had established similar agreements with China, South Korea, Japan, Malaysia, and opened to general visitors from New Zealand, Brunei, Vietnam and most of Australia.

New Zealanders will be able to travel to some parts of Australia starting Friday without quarantining, including to New South Wales, Canberra and the Northern Territory.  However, New Zealanders who return from Australia must quarantine for two weeks under government supervision at the cost of NZ$3100 ($2,064.91) for the first person and more for additional family members.  New Zealand, due to hold an election on Oct. 17, has said it does not plan open its borders to Australians for now.

Australia is also in talks with Japan, South Korea, Singapore and South Pacific nations on reopening travel as coronavirus infections ease, Prime Minister Scott Morrison said on Sunday.

Japan is planning to remove a ban on overseas travel to China and 11 other countries and regions including Taiwan, Australia, New Zealand, Singapore, South Korea, Vietnam and Malaysia next month.  Japan currently allows citizens, residents, and visa holders to reenter the country after testing negative for COVID-19 at the airport.

Malta: Imports / Exports

During the first eight months of this year, the trade deficit narrowed by €1,177.7 million when compared to the corresponding period of 2019, reaching €1,691.2 million. Both imports and exports decreased by €1,513.2 million and €335.5 million respectively.  Lower imports were mainly recorded in machinery and transport equipment (€1,026.8 million) and mineral fuels, lubricants and related materials (€392.2 million). On the exports side mineral fuels, lubricants and related materials (€254.3 million) accounted for the main decrease.

Imports from the European Union reached €1,878.3 million, or 50.9 per cent of total imports. There was a decrease of €247.1 million in imports from euro area countries when compared to the same period in 2019. Main increases and decreases in imports were registered from Canada (€123.0 million) and the United Kingdom (€951.4 million) respectively. With respect to exports, the main increase was directed to Singapore (€12.9 million), whereas Italy registered the highest decrease (€127.1 million).

Timberland Invest Ltd

Research & Marketing Department

Source:

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

Date:

October 16th, 2020


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