“BREXIT: New Deal With The EU…”

BREXIT:  New Deal With The EU

Prime Minister Boris Johnson on Thursday in a tweet said that Britain and the EU had agreed a “great” new Brexit deal and urged lawmakers to approve it at the weekend.  He further added that “Now parliament should get Brexit done on Saturday so we can move on to other priorities like the cost of living, the NHS, violent crime and the environment.”  European Commission President Jean-Claude Juncker also said that Britain and the EU had agreed a new Brexit deal and he recommended that the EU summit endorsed the agreement.  At a news conference with Johnson, Juncker said the deal meant there would be no need for a further delay to Britain’s departure and negotiations on the future relationship between Britain and the EU would begin as soon as the deal was approved by the UK and European parliaments.    Any deal will still have to go to a fractious British parliament that has rejected several attempts by Theresa May, to push through a withdrawal agreement she agreed with Brussels.   Johnson has now to secure approval for the agreement in an extraordinary session of parliament on Saturday, which would pave the way for an orderly departure on 31st October.  There is still uncertainty as to whether the votes will be achieved.

EU Leaders Meet For A Two-day Summit

EU leaders met for a two-day summit on Thursday and Friday.   The main topics of the meetings were dominated by Brexit, while other important issues such as Turkey’s invasion of Syria, possible enlargement and the budget of the EU were to be discussed.  Some of the comments from the national leaders and senior EU officials were from the Irish PM LEO Varadkar, whereby he said, “I think it’s a good agreement… I’ ll be in a position to recommend to the European Council today that the agreement be endorsed by the European Council.”  He further said that, “the backstop has been replaced.  It has been replaced with a new solution, a unique solution for Northern Ireland recognising its unique history and geography.  That new solution does what we need it to do, avoid a border between north and south, protects the all-Ireland economy, protects the single market and our place in it.”  German Chancellor Angela Merkel also said, “Certainly the news of the day is the successful closing of an agreement between the British government and the European Commission.  We are looking at this and will form our opinion, but we already know parts of this deal and to the extent that we know it, it is good news.”  She also added, that “the fact that the Irish prime minister is rather happy here is a very important sign.”  EU Commission President Jean-Claude Juncker said, “We have a deal.  And this deal means that there is no need for any kind of prolongation.  This is a fair and balanced agreement.”  He further added that “it provides certainty where Brexit creates uncertainty.  It protects the rights of our citizens and it protects peace and stability on the island of Ireland.  There will be no border on the island of Ireland.  And the Single Market will be protected.”

China’s September Exports

Total September imports fell 8.5 percent after a 5.6 percent decline in August, the lowest since May, and were expected to drop 5.2 percent and fell 3.2 percent from a year earlier, the biggest fall since February, showed customs data on Monday.   Despite the boosting measures for more than a year, China’s domestic demand has remained weak as economic uncertainty weighs on business and consumer confidence and discourages new investment.  A slide in China’s exports picked up pace in September while imports contracted for a fifth straight month, pointing to further weakness in the economy, indicating the need for further stimulus as the trade war persists.  China reported a trade surplus of $39.65 billion last month, compared with a $34.84 billion surplus in August.  China’s trade surplus with the United States stood at $25.88 billion in September, narrowing from August’s $26.96 billion.  China’s exports to the US fell 10.7 percent from a year earlier in dollar terms in January-September, while US imports dropped 26.4 percent during that period, showed the customs data.  Customs spokesman Li Kuiwen told a news conference on Monday that China’s stable domestic economy had provided a strong cushion against external challenges but added that trade development in the future was still complicated and severe.

China’s GDP Growth And Industrial Output

China’s third quarter economic growth slowed more than expected and moved to its weakest past in almost three decades as the trade war affected factory production.  Gross Domestic product (GDP) rose just 6 percent year-on-year.  This is a loss of momentum for the economy as the growth for the second quarter was 6.2 percent.  In a briefing after the release of the GDP data,  Mao Shengyong, a spokesman for China’s statistics bureau announced Beijing’s plans to bring forward some 2020 special local government bond issuance to this year, in a move to spur regional infrastructure investment.  In contrast to the disappointing data for GDP, China’s industrial output grew a better-than-expected  5.8 percent in September, faster than the 17 year low posted in August.  The increase was in line with sings of an increase in domestic orders, although overall demand remains at historically weak levels.  Fixed asset investment grew 5.4 percent from January to September, matching expectations, but slowing from the 5.5 percent in the first eight months.  Private sector fixed-asset investment, which accounts for 60 percent of the country’s total investment, grew 4.7 percent in January-September down from 4.9 percent in January to August.  Retail sales increased 7.8 percent year-on-year last month, in line with expectations, and faster than 7.5 percent in August.  In another positive sign, China’s property investment remained buoyant in September, boosted by a rise in new construction activity.  However, property transactions slowed during what is traditionally China’s “Golden September” peak season for new home sales, effected by the authorities’ measures on speculation which showed few signs of easing.

US Retail Sales

US Retail sales fell for the first time in seven months in September, suggesting that weakness in manufacturing could be spreading to the broader economy, keeping the possibility open for the FED to cut interest rates again later this month.  Retail sales dropped 0.3 percent last month as households cut back spending on motor vehicles, building materials, hobbies and online purchases.  This was the first drop since February.    The downbeat report from the Commerce Department on Wednesday came after data this month showed a moderation in job growth and services sector activity in September.  The economy is being affected by the 15-month trade war between the US and China which has soured business sentiment leading to a decline in capital expenditure and a recession in manufacturing.  Meanwhile, data for August was revised up to show retails sales rising 0.6 percent instead of 0.4 percent as previously reported.  Another report from the Commerce Department showed business inventories were unchanged in August and led economists to lower their GDP forecasts for the third quarter to a range between 1.2 percent and 1.9 percent pace.  Meanwhile, slower growth was also underscored by a third report from the FED describing the economy as expanding “at a slight to modest pace”.  The economy grew at a 2 percent pace in the April-June quarter, slowing from the first quarter’s rate of 3.1 percent.  The government will publish its snapshot of third quarter GDP later this month.

US Manufacturing Production

US manufacturing output dropped more than expected in September, amid a strike at General Motors.   The outlook for factories also remained weak amid slowing global growth and the tensions from the trade war.  The FED said on Thursday that manufacturing production fell 0.5 percent last month after an upwardly revision of 0.6 percent in August.  Excluding motor vehicles and parts, overall industrial production and manufacturing, output still fell 0.2 percent.  The FED’s measure of industrial sector includes manufacturing, mining, electric and gas utilities.  Industrial output declined 0.4 percent in September after an upward revised gain of 0.8 percent in August as a result of the soft manufacturing and drop in mining production.

Canadian Manufacturing Sales

Canadian Manufacturing Sales increased by 0.8 percent in August from July on higher motor vehicle sales as well as fabricated metal products.  Meanwhile, separate data from payroll services provider ADP showed that Canada added 28,200 jobs in September.   The data could support the expectations for the Bank of Canada to leave its benchmark interest rate unchanged at 1.75 percent when the central bank announces its decision on 30th October.

Trade Talks

On Friday of last week US President Donald Trump outlined the first phase of a deal to end the trade war with China and suspended a tariff hike.  Officials however said that both sides said much work needed to be done before an accord could be agreed.  Friday’s announcement did not include many details and Trump said it could take up to five weeks to get a pact written.  The emerging deal would cover agriculture, currency and some aspects of intellectual property protections, and would represent the biggest step by the countries in 15 months to end the trade war that has jittered financial markets and slowed global growth.

Australia

Data on Thursday showed that employment rose 14,700 in September, much as expected, while full-time jobs increased by a 26,200.  The jobless rate stands at 5.2 percent.   The Reserve Bank of Australia (RBA) has already cut rates three times this year to an all-time low of 0.75 percent and argued that more stimulus was needed to drive unemployment down.  Some analysts noted that the jobless rate was still some way from the RBA’s goal of around 4.5 percent and leading indicators of labour demand, such as vacancies had softened recently.  After the solid local jobs data was released, the Australian dollar climbed on Thursday by 0.4 percent to reach $0.6785, and edged away from the week’s low of $0.5724, although it remained shy of the recent high of $0.6810.

Oil

On Monday Saudi Arabia’s Energy Minister said that it was important to concentrate on the stability of the oil market rather than the price of oil and that a fair price was a stable price.  The minister Prince Abdulaziz bin Salman said oil exporters taking part in the global output deal between OPEC and its allies were showing serious commitment to the cuts.  During Putin’s first visit to Saudi Arabia in over a decade, Kremlin spokeman Dmitry Peskov said on Monday that President Vladimir Putin had discussed oil prices with Saudi King Salman and Crown Prince Mohammed bin Salman.    On Thursday oil prices dropped after industry data showed a larger than expected build-up in stocks in the US.  This has added to the concerns that demand for oil worldwide may weaken further amid a global economic slowdown.  Global benchmark Brent crude oil futures had fallen by 0.7 percent to $59.02 a barrel, while US crude oil futures were down by 0.9 percent to $52.9.  According to American Petroleum Institute’s weekly report, published on Tuesday, US crude inventories soared by 10.5 million barrels to 432.5 million barrels in the week to 11 October.

Markets Wrap

A three-day rally in European shares came to a halt on Monday, while investors assessed to what extent the talks between the US and China progressed on Friday.  The pan-European STOXX 600 index closed down 0.5 percent,  but erased nearly half of the losses made earlier in the session as defensive sectors and automakers rose. Tuesday saw European stocks rising to their highest in nearly three months with Irish stocks soaring almost 3 percent on news that negotiators were on the verge of reaching a deal with the EU over Brexit.  Shares in Irish companies .ISEQ which largely rely on UK business and seen as a barometer of concerns over Brexit reached their highest in more than a year.   British banks such as Lloyds, Royal Bank of Scotland and Barclays which are considered some of the most vulnerable to the UK economy and the uncertainty from BREXIT climbed 4 percent and 5 percent. Boosting sentiment was also an upbeat start to the US quarterly earnings season with better than expected reports from J P Morgan, and Johnson & Johnson.  Europe’s bank index rose 2.5 percent leading the gains among the major sectors, while retailers gained 2.4 percent.  European shares recovered from a weak start on Thursday helped by strong earnings from Swedish telecoms gear maker Ericsson.  Meanwhile, the political barriers to reach a Brexit deal hit domestically-focused UK firms.  The FTSE 100, the London’s blue-chip outperformed with an 0.4 percent rise as the index’s export focused firm benefited from a weakness in the pound.  On Thursday British and European stocks rose across the board.  The UK mid-cap index were up more than 1.1 percent, Germany’s DAX rallied 0.5 percent while Ireland’s ISEQ gained 0.3 percent.  Meanwhile eurozone government bond yields rose, while the 10-year British gilt yield was up 7 basis points at 0.793 percent its highest since July.  On Thursday US stocks opened higher as the concerns over BREXIT eased after Britain struck a last preliminary deal with the EU, while sentiment was also boosted by upbeat earnings from Netflix and Morgan Stanley.  The S&P 500 opened higher by 0.37 percent to 3,000.77, the NASDAQ Composite gained 0.65 percent to 8,176.91.  The Dow Jones Industrial Average rose 0.11 percent at the open to 27,032.38. After data from China showed slower economic growth Asian stocks stumbled reversing the gains made on the UK and EU after the striking of the long-awaited Brexit deal.

Currency Roundup

Sterling fell in early trading on Monday after the EU and Britain said over the weekend that a lot more work would be needed to secure an agreement over the UK leaving the EU.  Against the dollar the pound was down 0.6 percent at $1.2568, while against the euro the British currency was also 0.6 percent weaker at 87.76 pence.    The dollar held near a one-month low against its rivals on Thursday amid weak data that cast a shadow on the outlook for the US economy in the short term.  Sterling dropped 0.6 percent against the dollar to $1.2748 and shed 0.5 versus the euro to as low as 86.81 pence before steading and recovering some losses.  Since last week sterling surged some 5 percent as the negotiations between Britain and the EU made progress, hitting a five-month high in volatile trade.  The Norwegian crown weakened to an all-time low of 10.18 against the euro.  Analysts blamed the weakness of the crown for global trade jitters, while others said the speed and magnitude were hard to explain.  Meanwhile, the Australian dollar held to the 0.3 percent increase for the day against the dollar after jobs data showed buoyant hiring, lowering chances of monetary easing in November.  On Friday the euro was hovering around the seven week high reached against the dollar on Thursday as hopes that a Brexit deal between Britain and the EU could prevent an economic recession in the eurozone.

Malta:  Retail Price Index – September 2019

In September 2019, the annual rate of inflation as measured by the Retail Price Index (RPI) was 1.41 percent, down from 1.75 percent in August 2019.  The largest upward impact on annual inflation was the Food Index.  Whilst the highest annual inflation rates in September 2019 were registered in Food (2.56 percent), Recreation and Culture (2.08 percent), the lowest annual inflation rates were registered in Water, Electricity, Gas, and Fuels (0.3 percent) and household equipment and house maintenance costs (0.22 percent).  The Retail price index measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked with the cost-of-living adjustment (COLA) increases and periodic rent payment adjustments.

Malta:  Harmonised Index of Consumer Prices (HICP) – September 2019

In September 2019, the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 1.6 percent, down from 1.9 percent in August 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 Education 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 rules specified in a series of European Union Regulations that were developed by Eurostat in conjunction with the EU member states.  The HICP is used to compare inflation rates across the European Union.  Whilst the highest annual inflation rates in September 2019 were registered in the food and non-alcoholic beverages (3 percent) and recreation and culture (2.3 percent), the lowest annual inflation rates were registered in Education (-4.6 percent) and Clothing and Footwear (-1.1 percent).

 

 

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

October 18th, 2019


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