“Brexit News…”


Brexit News

On Tuesday British lawmakers instructed Prime Minister Theresa May to reopen a Brexit treaty with the EU to replace a controversial Irish border arrangement.  The EU has long rejected changing the Irish border backstop.  The Irish backstop is an insurance policy that aims to prevent the reintroduction of a hard border between Ireland and the British province of Northern Ireland.  This was a crucial part of a 1998 peace deal that ended decades of violence and preserve frictionless trade.  Critics said that it could bind the United Kingdom to the EU’s rules indefinitely.  The proposal which was put forward by lawmaker Graham Brady and passed by 317 votes to 301, called for the backstop to be replaced with unspecified “alternative arrangements” and said parliament would support May’s Brexit deal if such a change was made.  May supported a motion that contradicts the deal she finalised two months ago and insisted could not be changed.    Brussels has repeatedly said it does not want to reopen a treaty signed off by the other 27 EU leaders.  A spokesman for the European Council President Donald Tusk who spoke after the vote said the backstop was part of the withdrawal deal and not up for negotiation.  This was also echoed by the Irish government.

Italy Into Recession

Italy’s economy contracted for the second consecutive quarter at the end of 2018, running the economy into a recession.  This is a set-back for the new anti-establishment government.    Gross domestic product fell a quarterly 0.2 percent between October and December, following an 0.1 percent annual basis, as reported by ISTAT, the national statistics bureau.  ISAT also said that the quarterly contraction at the end of the year was due to a fall in domestic demand, which out weighed a positive contribution from trade flows.  In the preliminary estimate, it gave no numerical breakdown of components, but said industry and agriculture had been negative, while the service sector was “substantially stable”.   The fourth quarter decline was steeper than expected.  Prime Minister Giuseppe Conte said that measures by the government would ensure a firm recovery from the second half of this year.  He further pointed out that the eurozone’s third largest economy has been weakening since early 2017 and has recently been hit by a slowdown in main trading partners such as China and Germany.    For 2018, growth stood at 1 percent down from 1.6 percent in 2017.    Meanwhile an expansionary budget was approved in December with the aim of preventing a recession.  In November ISTAT said that the Budget would support private consumption this year, with a forecast growth of 1.3 percent.  Since then however, the economic outlook internationally has changed amid European slow down, trade war and the stagnation of productivity in Italy.


When compared to the previous month, French consumer confidence levels rebounded in January, although they remained well below average as the EU’s second-biggest economy struggles with the impact of anti-government protests.  The INSEE national statistics agency said consumer confidence in January rose 91 points (December 2018: 86) marking the lowest level since October, 2014. Consumer level remained below the long-term average of 100 points.   INSEE further added there had been a pick-up amongst consumers who felt it was a good time to buy products, as French department stores held their New Year sales.  On Tuesday Moody’s credit rating agency said that the protests posed risks to the French economic outlook, with the government forecasting growth of 1.7 percent for 2019.


In Greece, 10 year borrowing costs dropped to a four-month low on Monday after the country’s parliament approved a deal that changes the name of neighbouring Macedonia.  This has ended a 28 year row and paves the way for a five-year bond sale.   Parliament ratified an accord that will see the tiny Balkan state renamed “Republic of North Macedonia” unblocking the ex-Yugoslav republic’s aspiration to join the EU and NATO.  The decision has removed the cloud of political uncertainty and paved the way for the Greek debt agency to return to bond markets with a five-year syndicated issue.  The yield on the 10 year Greed debt was down 1.5 basis points at 4.05 percent which is its lowest since late September of last year and is down 35 bps from the start of the year.  Meanwhile, the Greek five year bond yield was unchanged at 3.04 percent but too far from a six-month low of 2.98 percent reached last week.  Other core eurozone government bond yields were 1-2 basis points higher.  Belgian bonds underperformed slightly after plans to issue a new 30 year bond sold via syndicate of banks.  Austria announced it would sell a new 10 year bond via syndication.   Germany’s 10 year government bond yield was marginally higher at 0.21 percent, after ECB President Mario Draghi said the ECB could resume bond purchases if necessary.  However, such a move is unlikely this year.    On Wednesday Greek bond yields dropped sharply, in the fifth day of falls, following a successful five- year bond sale, which is the first since Greece has exited its bailout last year.  The Greek 10 year government bond yield fell more than six basis points to a low of 3.915 percent, its lowest since 1st August, while Greece’s five year government bond yield was last down three basis points to a six month low of 2.928 percent.

China’s Industrial Profits

In December earnings at China’s industrial firms shrunk for a second straight month.  This has put pressure on policymakers to support industries that are hurt by slowing prices and weak factory activity arising from the trade war between the US and China.  Data shows that the manufacturing sector is already suffering from a decline in orders, job layoffs and factory closures as economic growth in China slows to its weakest in nearly three decades.  In 2018 China expanded 6.6 percent and growth is set to slow further this year as Beijing’s focus to reduce debt risks depress the property market and curb credit flows to the private sector, whilst severe measures to reduce pollution dents industrial activity.   On Monday the National Bureau of Statistics said that industrial profits in December fell 1.9 percent from a year earlier to 680.8 billion yuan amid weak factory-date prices and soft demand.

The US Shutdown

The longest shutdown in US history ended on Friday when Trump and Congress agreed to a temporary government funding, without any money for his wall, which was estimated to cost $5.7 billion.   According to Trump it is necessary to stop illegal immigration, human trafficking and drug smuggling.  Democrats call it costly, inefficient and immoral.   The US economy was expected to lose $ 3 billion from the partial federal government shutdown over President Donald Trump’s demand for border wall funding, according to congressional researchers.  800,000 federal employees returned to work after a 35-day unpaid period.  The nonpartisan Congressional Budget Office (CBO) said the cost of the shutdown will shrink the US economy by 0.02 percent than expected in 2019.  Mostly individual businesses and workers, in particular those who were without pay, will be affected.  The CBO said overall US economy lost about $11 billion during the shutdown and expects $8 billion to be recovered as the government reopens and employees receive back their pay.

The Fed And Interest Rate Increases

The Fed raised rates four times in 2018 and had signalled it would increase rates twice this year, however the economic outlook has become cloudier amid the recent volatile financial markets and signs that growth is slowing overseas, including China and the eurozone. The impact of the trade tensions has also a role to play.   On Wednesday, the Federal Reserve held the interest rates steady and discarded its promises of “further gradual increases” in interest rates and said it would be “patient” before making any further moves.  Fed Chairman Jerome Powell, in a two-day Federal Open Market Committee meeting said the case for rate increases had “weakened” in recent weeks as neither rising inflation or financial stability are a risk, and “cross-currents” including slowing growth overseas and the self-inflicted wound of a federal government shutdown made the US outlook less certain.  Powell said that continued US economic growth was still “the likeliest outcome” but was now less certain than a month ago when the Fed said the economy was just as likely to grow faster than expected as it was to face a sharp downturn.   One questions whether the shifting stance is a response from the pressure of volatile financial markets or from Donald Trump.  Trump had attacked the FED  for raising rates, arguing that it was undercutting economic growth.  Powell insisted that the FED was only reacting to economic data and not to other pressures.  After the release of the Fed’s statement, US stocks added to gains with the S&P 500 index ending the day about 1.5 higher while the dollar and short-term yields fell as investors gauged a lower probability of additional rate hikes any time soon.  In a separate statement, the Fed said it had decided to continue managing policy with a system of “ample” reserves, reinforcing the notion that the rundown may end sooner than expected.

US And China Resume Trade Talks

As just about a month is left since the 90-day truce was agreed in December between President Donald Trump and Chinese President Xi Jinping, cabinet-level officials led by Chinese Vice Premier Liu He and US trade representative Robert Lighthizer, started two days talks next door to the White House.    The aim of the meeting is to bridge deep differences over China’s intellectual property and technology transfer practices and to ease the trade war.  US President Donald Trump expressed optimism about the high-level trade talks but said that no final deal would be made until he meets with Chinese President Xi Jinping, in the near future.

Markets Wrap

On Monday the euro climbed to a 10-day high as investors sold the dollar and prepared for volatile markets before the US-China trade talks and a Federal Reserve policy decision.  Investors were focusing on Wednesday’s Federal Reserve meeting as policy makers were expected to signal a pause in their tightening cycle and to acknowledge growing risks to the US economy.  Meanwhile, the dollar edged down against major currencies as traders awaited news from US-China talks on Tuesday and Wednesday to see if a compromise between the US and China could be reached.   Monday also saw US stocks fall as weak forecasts from Caterpillar Inc and Nvidia Corp increased worries about a slowdown in China having a bitter impact on corporate profits.  Caterpillar Inc which is the largest heavy equipment maker, fell 8.4 percent as its quarterly profit widely missed Wall Street estimates, hit by softening demand in China and higher manufacturing and freight costs.  Its full-year earnings outlook also fell short of estimates.  Caterpillar having dropped 1.3 percent was the biggest drag on the Dow and the S&P industrial index.   Meanwhile, Nvidia tumbled 12.2 percent after the chipmaker cut its fourth-quarter revenue estimate by half a billion dollars on weak demand for its gaming chips in China and lower than expected datacentre sales.  European stocks were firmly in the red in mid-afternoon.     On Thursday the dollar fell versus its peers after the Federal Reserve took a dovish turn during its policy meeting.  Investors sentiment was stoked and supported currencies such as the Australian dollar and the euro.  The dollar index which is a gauge of its value versus six major peers, fell around 0.1 percent to a three week low of 95.26.  The euro gained 0.24 percent to $1.1504 as the dovish Fed overshadowed the concerns about weakening growth in the eurozone.  Sterling which has its own troubles over the uncertainty over a deal to avoid a chaotic exit from the EU increased 0.1 percent at $1.3131.   Meanwhile, German bond yields dropped to a four week low on Thursday after the Fed’s news, with the 10 year bond, which is the benchmark for the eurozone, dropping to two basis points to 0.162 percent.  Most other eurozone bond yields were lower by 1-3 bps and France’s 10-year bond yield dropped to its lowest in over two years at 0.573 percent down 2 bps on the day.  On Thursday the S&P 500 and NASDAQ extended to a rally on strong earnings from Facebook Inc, after the dovish comments from the FED that eased investors’ concerns about tighter financial conditions crimping economic growth.  Meanwhile investors awaited the outcome of the US-China trade talks.


On Monday oil headed for its biggest one day drop in a month on evidence of more growth in crude supply in the US.  The price of oil is still on course for its strongest January gain for 14 years.  Other factors effecting the price of oil is the trade dispute between the US and China and its impact on the Chinese economy.  Brent crude oil futures were down $1.49 at $ 60.15 (down 2.5 percent) on the day, which is the largest one-day percentage fall since late December, while US futures fell $1.71 to $51.98 a barrel.  This month oil has benefited from another round of production cuts by OPEC and its partners, as well as robust trade in physical barrels of crude led by China.  The price has risen by 12 percent so far in January, which is the largest increase in percentage terms in the first month of the year since 2005, when it gained 14 percent.  The demand outlook centres on China and whether its refiners will continue to import crude at the same pace of 2018.  On Tuesday oil prices rose as Washington imposed sanctions on state-owned Venezuelan oil company PDVSA in a move to likely curb the OPEC member’s crude exports, but gains were capped by supply and the slowdown in the Chinese economy.   The aim of the sanctions are to drive President Nicolas Maduro from power.  These were the strongest US measures yet announced against the socialist president who has overseen economic collapse and an exodus of millions of Venezuelans in recent years.    Venezuela which forms part of OPEC, has the world’s largest supply of oil reserves, however in view of the lack of investment its potential has not been fully realised.  The US has taken about half of the country’s export volumes, followed by India and China.  It has been the biggest buyer of Venezuelan oil, despite the political differences.

Malta:  Registered Unemployed – December 2018

In December 2018 the number of persons registering for work stood at 1,765 decreasing by 18.6 percent when compared to the corresponding month of 2017.  Registrants for work decreased when compared to December 2017, irrespective of how long they had been registering for work.  The largest decrease in registrants were recorded among persons who had been registering for more than one year.

Malta:  Industrial Producer Price Index – December 2018

During December 2018, the industrial producer price index registered an increase of 3.79 per cent when compared to the same month of the previous year.  The factors attributed to the rise of 8.68 percent in intermediate goods, 1.19 per cent in consumer goods and 0.06 per cent in capital goods.  There were no price changes registered in the energy sector.  Industrial producer prices for the domestic market increased by 0.74 percent.  Price rises were recorded within intermediate goods (2.73 percent), consumer goods (2.06 percent) and capital goods (0.3 percent).

Malta:  Moody’s Credit Opinion Report

The latest update of Moody’s credit opinion report affirmed Malta’s sovereign rating at A3 with a positive outlook.  The A3 rating is attributed to the robust growth of the economy, relatively elevated wealth levels and a stable and conservative domestically oriented banking sector.  The positive outlook reflects Malta’s sustained progress in reducing national debt as well as its robust medium-term growth prospects that are supportive of further improvements in public finances.  Moody’s expects growth to remain strong in 2019 driven by growth in investment and private consumption.  Moody’s also expects a Government surplus of 1.2 percent of GDP in 2018.

Company News

Apple Inc.

Apple Inc reported sharp growth in its services business on Tuesday and Chief Executive Tim Cook said trade tensions between the US and China are easing, helping boost the company’s shares after hours even though iPhone sales dipped in the holiday shopping quarter for the first time.  Apple said that sales for the first quarter would most likely be lower than Wall Street expected.  This is a signal that it continues to face weak demand for the iPhone in particular in China.  China is the biggest smartphone market.  Investors focused on the growing services of the company, such as Apple Music and App Store.  On Tuesday in after-hours trading the company’s shares rose 6 percent to $163.50.  They had fallen more than 30 percent since November over concerns about weak iPhone sales and a general decline in high-tech stocks.  The shares of Iphone suppliers such as Micron Technology, Broadcom Inc, and Skyworks Solutions rose more than 1 percent after the report by Apple.    Apple said revenue from services which investors are counting on to fuel growth reached $10.8 billion, in line with Wall Street estimates.  Gross Margin for services hit 63 percent, up from 58.3 percent a year ago.    The company said it has 360 million subscribers to both its own and third party services.  It set a goal of expanding to 500 million by the end of 2020.  It said it has 1.4 billion active devices, which is an increase of 100 million from last year, and that 900 million of those are iPhones.  Apple stopped reporting on the unit sales of its iPhones the latest quarter, however, it said it would start providing regular updates on the number of iPhones and overall devices in use.

Facebook Inc.

Facebook reported better than expected profit on Wednesday, as it struggled with scandals over improperly shared customer data and propaganda on its service that tarnished its image and was the target of political scrutiny across the globe last year.  Ditigal advertisers are still spending money on the service in order to reach customers even after a series of high profile embarrassments for the world’s largest online social media network.  Advertising from which Facebook makes the vast majority of its revenue has not been significantly affected.  The total fourth quarter revenue rose 30 percent to $16.9 billion from $12.97 billion, its slowest quarterly revenue growth in more than six years as a public company, but was above analysts’ average estimate of $16.4 billion.    Net income rose to $6.88 billion, or $2.38 per share (2017:  $4.27 billion or $1.44 per share).


Antonella Mercieca

Client Relationship Manager


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


February 1st, 2019

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