“Brexit: Two-Week Reprieve …”

Brexit:  Two-Week Reprieve

Nearly three years after Britain voted narrowly to leave the European Union, its departure is uncertain.  On Wednesday, Theresa May asked for at least three-months delay to Brexit to buy time to get her twice rejected divorce deal through parliament. Her plan to hold a third vote on the divorce deal was thrown into disarray by a surprise intervention from the speaker of parliament.   The European commission immediately resisted.  May said Britain remained committed to leaving the European Union “in an orderly manner” and she wanted to postpone Britain’s departure to 30^th June.  The EU said any extension should either be until the date of the European Parliament elections, 23^rd May, or at least until the end of the year, which would require Britain to take part in those elections.  May however said that it was not in Britain’s interests to take part in European elections.  EU leaders discussed May’s request for a Brexit delay at a summit in Brussels on Thursday and Friday.  After seven hours of summit brainstorming on Thursday, European Union leaders have given Prime Minister Theresa May two weeks’ reprieve until 12^th April.  The 27 peers kept a host of options open, ramping up pressure on parliament to support May and giving Britain an outside chance of staying in for much longer.   Until 12^th April, summit chair Donald Tusk said, “all options will remain open and the cliff-edge date will be delayed.”  He told a news conference that, “The UK government will still have a choice between a deal, no deal, a long extension or revoking Article 50 (the withdrawal notice).”  If Britain decides by 12^th April against holding the EU election, it could then leave the EU without a deal at any time up to 22^nd  May.  May said she would not cancel Brexit or seek a long delay that would mean asking people to vote in EU elections three years after voting to leave.  She insisted she could secure a deal next week however, many in London doubt that, after May publicly blamed lawmakers on Wednesday for the deadlock.

Germany To Create A State-Owned Fund

Germany plans to pass legislation by the end of 2019 to create a state-owned fund that can protect key companies from takeovers by Chinese and other foreign firms, government sources said.  Economy minister Peter Altmaier proposed the fund in February as part of a more defensive industrial strategy.  This move by Germany comes at a time when the European Union as a whole is reconsidering the bloc’s industrial strategy and relations with China in the face of increased investment in critical sectors by Chinese state-owned enterprises.  The European Commission has urged the bloc to back its ideas to curb Chinese companies and EU leaders had to discuss the issue at a summit in Brussels this week. In February after presenting Germany’s industrial strategy for the next decade Atlmaier said that key sectors were steel and aluminium, chemicals, machine and plant engineering, optics, autos, medical equipment, Green technologies, defence, aerospace and 3D printing.  Among the companies who according to Atlmaier are crucial for the economy as a whole were such names as Deutsche Bank, Thyssenkrupp, Siemens, and Germany’s big carmakers.  In an interview Altmaier told Reuters that his aim was to safeguard global competitiveness and technological leadership of German industry for the coming decades.

Germany’s Manufacturing

Germany’s manufacturing deepened in March amid tensions in global trade.  The IHS Markit’s Purchasing Manager’s Index for the sector fell 44.7, the lowest since 2012 and well below 48 expected by economists.  This is the third consecutive reading below 50, which indicates contraction.  Gauges for new orders and employment declined.  After the survey was published the euro dropped.  Meanwhile, Germany’s composite index, which includes services, slipped to 51.5, the lowest in almost six years.  The services index came in at 54.9 after posting 55.3 in February.

Bank Of England Keeps Rates On Hold

The Bank of England (BOE) kept interest rates steady on Thursday and said that most businesses felt as ready as they could be for a no-deal Brexit that would likely hammer economic growth and jobs.  The BOE said that nine rate-setters voted unanimously to keep interest rates on hold at 0.75 percent.  The BOE said, “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal.”  The central bank again said that rates could move in either direction if there is a no-deal Brexit, as a sharp fall in the value of the pound could generate inflation pressure in addition to the broader economic shock.  Separately the BOE published a survey of just under 300 companies that showed around 80 percent (up from 50 percent in January) feel they are “ready” for a no-deal, no transition Brexit.  Meanwhile, the minutes from the March meeting of the Monetary Policy Committee (MPC) showed little change in tone since the central bank published its latest economic outlook in February.

The FED

The FED on Wednesday abandoned projections of any interest rate hikes this year amid signs of an economic slowdown and stated it would halt the steady decline of its balance sheet in September.  Having downgraded the US growth, unemployment and inflation forecasts, policymakers said the Fed’s benchmark overnight interest rate, or fed funds rate was likely to remain at the current level of between 2.25 percent and 2.50 percent at least through this year.  Fed policymakers no longer see the need to move rates to a “restrictive” level as a guard against inflation.  This is in contrast to what was projected last year.  Inflation has remained below the central bank’s 2 percent target.  Policymakers also said that as of May they would slow their monthly reduction of as much as $50 billion in asset holdings, and halt them in September, provided that the economy and money market conditions evolve as expected. In a policy statement on Wednesday, the Fed’s rate-setting committee said that continued growth and a healthy jobs market remains “the most likely” scenario for the US economy.  There are doubts however as household spending and business investment at the start of the year have slowed down, indicating an early end to a growth spurt triggered in 2018 by a massive tax cut package and government spending.  Economic projections released on Wednesday show that policymakers at the median see the US economy growing only 2.1 percent in 2019, a full percentage point below the 3 percent growth seen in 2018.

US Jobless Claims

The number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to strong labour market conditions.   However, the pace of job growth has slowed from last year’s robust gains.  Data on Thursday showed factory activity in the mid-Atlantic region rebounding sharply this month after  falling into negative territory in February for the first time in more than 2 ½ years.  Manufacturers were less upbeat about business conditions and capital spending over the next six months, supporting the view that the manufacturing sector is slowing in line with softening economic growth.  Meanwhile, the Labour Department said on Thursday that initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 221,000 for the week ended 16^th March.

Japan’s Government Downgrades The View Of The Economy 

Japan’s government downgraded its assessment of the economy in March for the first time in three years, blaming the US-China trade war for the slumping exports and industrial output.  According to the cabinet office the economy is in gradual recovery, but exports and output are showing signs of weakness.  The monthly economic report for March gave a pessimistic outlook, saying the weakness could continue for some time in the future.  The downbeat assessment could trigger the government to delay a nationwide sales tax hike scheduled for October, and increase speculation that the Bank of Japan (BOJ) will take some steps to bolster economic growth.  The cabinet office has downgraded its assessment of industrial production for the second consecutive month, saying it has shown signs of weakness and flat lined.  Exports fell for a third straight month in February and industrial output in January saw its sharpest decline in a year as the tariffs imposed by China and US slowed China’s economy and reduced demand for mobile phone parts and chip-making equipment from Japan.  For March, the government left unchanged its assessment that consumer spending is recovering and capital expenditure is increasing.  There are concerns however that companies will start cutting capital expenditure plans for fiscal 2019 in April due to uncertainty about the global trade policy.

Turn to Asian Bonds

In February, foreigners turned net buyers of Asian bonds, buying a net of $1.95 billion worth of bonds last month after selling $3.26 billion in January data from central banks and bond market associations in Malaysia, Thailand, Indonesia, South Korea and India showed.  The bulk of the money flowed into Indonesian bonds.  Foreigners purchased $2.33 billion worth of Indonesian bonds amid expectations that its central bank may begin easing policy soon after last year’s aggressive tightening.  Overseas investors bought Malaysian bonds for the first time in four months, amid a stronger ringgit and receding political tensions.  Meanwhile, Indian bonds saw foreign outflows of $844 million in February as tensions rose after India engaged in air strikes against a militant camp in Pakistan territory.   Foreigners bought $921 million so far this month, data showed, as hopes that Prime Minister Narendra Modi’s party will win the upcoming elections.  Thai bonds saw $486 million of outflows as the short-lived entry of the sister of King Maha Vajiralongkorn into politics threw the election into turmoil.

Markets Wrap

On Tuesday Germany’s DAX lost 0.7 percent driven by a pullback in car producers after the sector’s best day in more than three months.  Weighing on the DAX was also Munich RE, falling down 1.3 percent after it issued a cautious profit outlook.  London’s FTSE lost 0.2 percent, weighed down by a 2 percent fall in resources stocks across Europe. On Wednesday European shares retreated from near six month highs with the German stocks leading losses as chemical producer Bayer sank 10 percent following another US court verdict on weed killer Roundup’s link to cancer.  Eyes were on the US Federal Reserve statement and Asian markets were broadly lower.  The pan-European STOXX 600 index fell 0.3 percent as investors booked profits after five sessions of gains.  The dollar rose, attracting safe-haven bids after reports of further tension in US-China trade negotiations.  Volatility in foreign exchange markets have plummeted due to a dovish shift by major central banks including the US Federal Reserve.  The Aussie dollar which is a proxy for China risk because of Australia’s dependence on Chinese demand for its exports, slipped a quarter of a percent to $0.7070.   After the Fed’s announcement benchmark US stock market indexes swung higher after the Fed’s statement was released whilst giving up the gains later in the trading session.  Meanwhile key Treasury security yields dropped to the lowest levels since early January.  On Thursday technology shares pushed Wall Street’s main indexes higher, whilst financials which are sensitive to interest rates, took the biggest hit and were down 0.72 percent.  The banking index fell 1.65 percent.  Technology stocks rose 1.62 percent on the back of Apple Inc and chipmakers.  The iphone maker’s shares jumped 3.3 percent after analysts said they expected the company’s video service, which launches on Monday, to make a material impact on the company’s earnings in the future.   On Friday European stock markets rose amid the European Union’s agreement on a two-week reprieve that precludes the UK from leaving the bloc without a deal next week.  After two days of losses, the pan-European STOXX 600 index rose 0.3 percent, led by 0.6 percent gains for Germany’s DAX and 0.2 percent rise in French stocks.  The FTSE 100 which has companies dependent on international revenues which tend to lose when sterling rises, dipped 0.2 percent.  Meanwhile, Asian shares held near 6 ½ month highs on Friday after upbeat US data and optimism in the tech sector offset the jitters caused by the cautious outlook by the FED on the US.  On Wall Street, the S&P 500 gained 1.09 percent while the NASDAQ Composite rallied 1.42 percent both hitting five-month highs.

Tariffs On Chinese Goods

On Wednesday, US President Donald Trump warned that the United States may leave tariffs on Chinese goods for a “substantial period” to ensure that Beijing complies with any trade agreement.  This could complicate trade talks between the US and China which are set to resume next week as Chinese officials have been pressing for a full lifting of US tariffs as part of any deal, according to people who are familiar with the talks.   The face to face talks next week, will be the first since Trump delayed a 1^st March deadline to avert a rise in tariffs on $ 200 billion worth of Chinese imports to 25 percent from the current 10 percent.  Washington is demanding that China ends practices that the US says force the transfer of American technology to Chinese companies, improve access for American companies to China’s markets and curb industrial subsidies.  The eight month trade war between the US and China has raised costs, roiled financial markets, decreased US farm exports and disrupted manufacturing supply chains.

Oil

OPEC on Monday scrapped its planned meeting in April and will decide instead whether to extend output cuts in June.  Saudi Arabia’s energy minister said the market was looking oversupplied until the end of the year but April would be too early for any decision regarding an output policy. In recent months the United States has been increasing its own oil exports while imposing sanctions on Venezuela and Iran in an effort to reduce their shipments to global markets. According to the Saudi Arabia’s energy minister, inventory levels and oil investments are the two main factors guiding OPEC’s action.  Brent oil prices hit a 2019 peak above $68 per barrel last week.    On Thursday, oil held near the 2019 highs, supported by tightening US stocks and declining output from key producers due to OPEC production cuts and US sanctions on Iran and Venezuela.  International Brent crude oil futures were up 5 cents at $68.55 a barrel having hit their highest since 13^th November at $68.89 earlier in the session.  Meanwhile, US West Texas Intermediate crude futures were $ 60.10 per barrel, down 13 cents.  WTI reached its highest since 12 November earlier in the day at $60.33 per barrel.

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

In February 2019, the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 1.3 percent up from 1 percent in January 2019.  The largest upward impact on annual inflation was measured in the Food and Non-alcoholic Beverages Index, while the largest downward impact was recorded in the Clothing and Footwear Index.

Malta: Retail Price Index – February 2019

In February 2019, the annual rate of inflation as measured by the Retail Price Index (RPI) was 1.92 per cent, up from the 1.49 percent in January 2019.  The largest upward impact on annual inflation was recorded in the Food Index, while the downward impact was recorded in the Clothing and Footwear Index.

Malta:  International Investment Position of Malta, 2018

As at the end of 2018, Malta’s economy recorded a net International Investment position of EUR 8.1 billion.  Compared with 2017, total foreign assets increased by EUR 6.3 billion in 2018 while total foreign liabilities increased by EUR 5.5 billion, resulting in an overall increase in the net International Investment Position (IIP) of EUR 0.8 billion.  The level of Malta’s total foreign assets abroad amounted to EUR248.9 billion as at the end of 2018.  Meanwhile at the end of December 2018, Malta’s foreign liabilities were recorded at EUR 240.8 billion.  Direct investment totalled EUR 193.7 billion up from EUR 184.8 billion recorded in December 2017 and accounted for 80.4 per cent of total foreign liabilities.

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