“Britain Goes To the Polls …”

Britain Goes To the Polls

Voters in Britian go to the polls on Thursday in an election. The results of the  election will be either Brexit under Prime Minister Boris Johnson or towards another referendum under Jeremy Corbyn  that could ultimately reverse the decision to leave the European Union.  After failing to deliver Brexit by 31 October deadline, Johnson called the 12 December election, under the slogan “Get Brexit Done” to break a deadlock situation that has eroded confidence in the economy.  He also promised to spend more on health, education and the police.  Meanwhile, his main opponent Labour leader Jeremy Corbyn, promised higher public spending, nationalisation of key services, taxes on the wealthy and another referendum on Brexit.  Many opinion polls suggest that Boris Johnson will win, pollsters got the 2016 referendum wrong and their models predict outcomes that range from a hung parliament to the biggest Conservative landslide since the era of Margaret Thatcher.

UK Economy

The UK economy grew at its slowest annual pace in nearly seven years in October.  According to official data on Tuesday, the approach of a Brexit deadline and the global economic slowdown hit Britain’s factories and the construction industry during the month.  Gross domestic product rose by 0.7 percent when compared with October 2018, the weakest growth since March 2012, when Britain was still trying to overcome the effect of the financial crisis.  The office for National Statistics said that in the three months to October, growth flat-lined compared with the previous three-month period.  The ONS said that the economy has showed no change in the monthly terms.  As the markets are focusing on the upcoming polls investors reacted little to the data.

EU Approves Aid For Battery Research

On Monday the European Commission approved 3.2 billion euros of state aid from seven European Countries for research and innovation in battery technology.  The approval is for projects in Belgium, Finland, France, Germany, Italy, Poland and Sweden to support the research and innovation in batteries, a common priority for the EU. The 3.2 billion euros in public funding is expected to unlock an additional 5 billion euro in private investments.  The project is expected to be completed for 2031.  The Commission said that the project involved “ambitious and risky” research and development across the batteries value chain, from mining and processing the raw materials, production of advanced chemical materials, the design of battery cells and modules,  their integration into smart systems, to the recycling and repurposing of used batteries.

US Nonfarm Payrolls

The US economy added 266,000 jobs in November, the biggest gain in 10 months according to the  Labour Department.  Meanwhile, the unemployment rate dropped to 3.5 percent its lowest level in nearly half a century.  These figures indicate that the 17-month trade war between the US and China, turned the manufacturing into recession and has not as yet spread over to the broader US economy.

Trade Talks

Progress in talks to resolve the trade dispute with China remains quite an illusion.  Whilst a strong consumer base is keeping the US economy moving, businesses are struggling to make important and hiring decisions in view of the relations with the US trading partners.  At the forefront of investor’s minds is an impending deadline of 15th December for the United States to impose a new round of tariffs on China.  Top White House economic adviser Larry Kudlow on Friday of last week said that the deadline was still in place to impose a new round of tariffs on Chinese consumer goods, but he also said that President Donald Trump liked the way the trade talks with China are going.

The FED Meeting

The US FED on Wednesday held interest rates steady and signalled that borrowing costs will not change anytime soon, with moderate economic growth and historically low unemployment expected to persist through the 2020 presidential election. In a news conference shortly after the release of the latest policy statement and new quarterly economic projections, FED Chair Jerome Powell said, “Our economic outlook remains a favourable one, despite the global developments and ongoing risks.” He further said that “As the year progressed, we adjusted the stance of monetary policy to cushion the economy and provide some insurance… This shift has helped support the economy and has kept the outlook on track.”  The FED’s decision left the benchmark overnight lending rate unchanged between 1.5% and 1.75%, three-quarters of a percentage point below where it started the year.  The new economic projections showed that 13 of 17 FED policymakers see no change in interest rates until at least 2021, whilst the other four saw only one rate hike next year.  Overall FED policymakers see the unemployment rate to remain at their estimated long-run sustainable level for anther three years even as most expect inflation by then to end up at, or a little above, the central bank’s 2 percent target, showed the new projections.

Trump’s Impeachment

Democrats In The US House of Representatives announced impeachment charges against President Donald Trump on Tuesday, making the fourth president in the US history to face a formal effort to remove him from office.  The Democratic-controlled House is almost certain to vote to impeach the president as soon as next week, setting up a trial in the Republican-led Senate early next year, shortly before the presidential election kicks off.  The impeachment charges accuse Trump of “betraying” the country by abusing power in an effort to pressure Ukraine to probe a political rival and then obstruct Congress’ investigation into the scandal.  The abuse of power charge accuses Trump of using nearly $400 million in US security aid and a possible White House meeting with his Ukrainian counterpart to solicit Ukraine to publicly announce the investigations of Vice President Joe Biden and a debunked theory that Ukraine not Russia interfered in the 2016 US election. The obstruction charge accuses the president of defying and impeding the House’s efforts to investigate the scandal , adding that Trump  would remain a threat to the US Constitution if he remained in office.  Meanwhile according to republicans Trump did nothing improper in his call with Ukrainian President  Zelenskiy and say there is no direct evidence he withheld aid for a White House meeting in exchange for a favour.

Canada And Mexico Sign Agreement To Replace NAFTA

Top officials from Canada, Mexico and the US signed a new pact on Tuesday, that aims to improve the enforcement of worker rights and hold down prices for biologic drugs by eliminating a patent provision.  The signing ceremony in Mexico launched what could be the final approval effort for US President Donald Trump’s three-year quest to revamp the 1994 North American Free Trade Agreement (NAFTA), a deal which he has blamed for the loss of millions of US manufacturing jobs.  The US-Mexico-Canada Agreement (USMCA) was signed more than a year ago to replace NAFTA, but Democrats controlling the US House of Representatives insisted on a major changes to labour and environmental enforcement before brining it to a vote.  There were intense negotiations in the past week among Democrats, the Trump administration and Mexico that produced more stringent rules on labour rights aimed at reducing Mexico’s low-wage advantage.  Both Canada and the US House Ways and Means Committee said the deal included a mechanism for verification of compliance of union rights at the factory level in Mexico by independent labour experts.

Oil

Oil prices slipped on Monday as data showed that Chinese exports declined for a fourth straight month.  This sent jitters to the markets that were already concerned about damage being done to the global demand by the trade war.  On Wednesday OPEC said it now expected a small deficit in the oil market in the next year, suggesting the market is tighter than previously thought due to restraint by Saudi Arabia even before the latest supply pact with other producers takes effect.  On Thursday oil prices rose recovering from some of the losses in the previous session after OPEC forecasts a supply deficit next year.

Markets Wrap

Monday saw European stocks dropping and dragged down by the shares in Tullow Oil plc after the oil and gas explorer scrapped its dividend, whilst weak data from China also weighed on sentiment.  French stocks were leading the declines among their peers, as the finance minister said they were ready to go to the World Trade Organisation to challenge US President Donald Trump’s threat to put tariffs on champagne and other French goods amid a row over a French tax on internet companies.  The Euro STOXX 600 was down marginally, while the German DAX dropped 0.1 percent, France CAC 40 shed 0.2 percent while the FTSE 100 was flat.  Meanwhile Japan’s benchmark index Nikkei added 0.33 percent while the MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.15 percent.  Also, on Monday the German benchmark bond yields were lower ahead of a week where a UK election and meetings of the US Federal Reserve and European Central bank meetings were to take place. As investors were cautious before the meetings and due to the uncertainty from the trade war, sentiment towards the safe-haven bonds at the start of the week was lifted.  On Tuesday US stocks rose after a report that the US and China were planning to delay a new round of tariffs that are set to kick in on 15 December. Tuesday also saw European shares falling for a second day running.  The Frankfurt trade-sensitive DAX fell 0.3 percent while export-reliant mining and auto-sectors dropped around half a percent each.  Consumer stocks including some food and beverage makers and financials were among other big decliners.  Meanwhile, defensive stocks such as real estate, utilities and healthcare stocks gained.  London’s FTSE 100 fell 0.3 percent.   On Wednesday Japanese stocks ended lower amid the approaching deadline for US tariffs on nearly $160 billion worth of Chinese consumer goods just weeks before Christmas that kept investors away from risk-taking.  Nikkei index closed down 0.08 percent at 23,391.86 with industrial and healthcare sectors leading the declines.  Meanwhile, European government bonds dropped on Wednesday before the deadline, whilst the FED and ECB meetings kept investors at the side.  The benchmark 10-year bond yields in Germany fell one basis point to -0.293 percent moving away from the three-week high of -.26 percent reached last week.  Likewise, comparable yields in France and Belgium were down a similar amount.  As currency market volatility is near record lows, the demand for peripheral debt remained supported with the yields in 10-year Italian bonds holding near a two-week low of 1.345 percent.   European shares rose slightly on Wednesday as investors saw a pivotal British election on Thursday and the meetings pending for the week of the ECB and US.  Telecom stocks led the declines in the European subsectors as Telefonica Deutschland the German mobile operator cut its dividend.  After the FED meeting, US stocks rallied modestly, which had been widely anticipated by investors.  The benchmark S&P 500 index which was largely flat when the FED announced its policy decision closed up about 0.3 percent.  Yields on US Treasury securities fell in the afternoon after trading, with the 10-year note last yielding 1.79%. Meanwhile, borrowing costs in benchmark eurozone issuer Germany hovered at a one week low on Thursday reflecting the degree of caution among investors.  In early London trade, most of the 10-year bond yields across the single currency bloc were little changed on the day.

Currency Roundup

After the strong labour market data in the US that powered the stock markets on Friday of last week which bounced the dollar, the currency was marginally lower on Monday against a basket of currencies and the euro at $1.1064.  The dollar was restrained from moving higher amid worries about an escalation in the US-China Trade war.  The dollar was also down 0.1 percent against the Japanese yen at 108.51 yen.  Meanwhile, in other currency markets the British pound made more gains rising to a new 7-month high of $1.318 as investors raised their bets that in Thursday’s general election, the Conservative Party will win and will have a ruling majority in parliament.  On Wednesday the US dollar climbed higher as investors awaited the outcome of the FED meeting and on hopes that the US will delay the imposition of tariffs on Chinese goods.  The Swedish crown surged after higher than expected inflation numbers.  The sterling shed 0.3 percent after a poll showed the ruling Conservative is ahead.  The main focus of the markets is not the release of key economic data but political events and the meetings scheduled this week. After the FED decision, the dollar slid to a four-month low against a basket of major trading currencies.

Malta:  International Trade In Goods – October 2019

During the first ten months of the year, the trade deficit widened by EUR 935.2 million when compared to the corresponding period of 2018, reaching EUR 3,531.4 million.  Both imports and exports increased by EUR 1046.5 million and EUR 111.3 million respectively.  Higher imports were mainly recorded in machinery and transport equipment whilst the main increases in exports were registered in chemicals, miscellaneous manufactured articles, machinery and transport equipment partly outweighed by a decrease of EUR 59.6 million in mineral fuels, lubricants and related materials.  Meanwhile, for the month of October provisional data for registered international trade recorded a trade deficit of EUR 349.3 million (2018: EUR 304.1 million). While imports experienced an increase of EUR 35.6 million exports registered a decrease of EUR 9.6 million.

Malta:  Registered Employment: June and July 2019

In July 2019, registered full-time employment increased by 5.4 percent while part-time employment as a primary job increased by 1 percent when compared to the corresponding month in 2018.  Over a period of one year, the labour supply in July increased by 5.2 percent reaching 221,029.  This was mainly attributed to a year on year increase in the full-time registered employment and a decline in registered unemployment.  Comparing July 2019 to July 2018, the highest increase in employment was brought about by administrative and support service activities and construction with 1,701 and 1,694 respectively.

Antonella Mercieca

Client Relationship Manager

Source:

Reuters, https://nso.gov.mt, https://www.telegraph.co.uk (image)

Date:

December 12th, 2019


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