“Britain Quits EU …”

Britain Quits EU

Britain is set to formally leave the European Union on Friday, followed by a “business as usual” transition that ends next December.  The EU and Britain will start trade talks in the coming days.  Overnight, the British government said it will introduce a Bill in parliament on Wednesday for legislation to end automatic rights for European Union Vessels to fish in UK waters.  Meanwhile on Wednesday the European Parliament gave its final approval to the UK’s divorce deal from the bloc, paving the way for Brexit to take place on Friday after the voting of 621 versus 49 against the Brexit deal, with 13 abstentions.    The UK now has an 11-month deadline to reach a trade agreement with the EU.

BOE Meeting

The meeting, which is the last under Governor Mark Carney, was one of the least predictable for years as markets had factored in a 50 percent probability of a 25-basis point rate cut.  Economic momentum has shown signs of picking up since December’s general election, said the BOE, adding that signs of global stabilisation also meant stimulus was not yet needed.  The Monetary Policy Committee remained split along the 7-2 lines as before, with external members Michael Saunders and Jonathan Haskel again voting to lower rates.

UK House Prices

Industry figures on Wednesday showed that British house price increased in January at their fastest annual rate since November 2018, an indication of a modest pick-up in the housing market and broader economic confidence since December’s election.  House prices in January alone rose by 0.5 percent on the month, up from 0.1 percent in December.

UK’s Services And Manufacturing

The IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) released on Friday, showed that Britain’s vast services sector returned to growth in January for the first time since August.  Meanwhile the downturn in manufacturing eased.

The US Economy Misses Trump’s 3% Growth Target

The US economy missed the Trump’s administration’s 3 percent growth target for a second straight year, posting its slowest annual growth in three years in 2019 amid the slump in business investment and damage from the trade war.  According to the Commerce Department on Thursday, the economy grew 2.3 percent representing the slowest since 2016 (2018:  2.9 percent).  Meanwhile, gross domestic product increased at a 2.1 percent annualised rate in the fourth quarter, matching the third quarter pace, as lower borrowing costs encouraged purchase of motor vehicles, houses etc.  Increased government spending also helped to lift growth.


In Italy, Salvini campaigned for Sunday’s regional election in Emilia-Romagna since the beginning of the year, seeking a shock victory that he hoped would bring down the national coalition government.  On Monday the Italian 10-year yield fell to a three-month low after the right-wing leader Matteo Salvini failed in his bid to overturn decades of leftist rule in the northern region of Emilia-Romagna.  This was a relief to the national government.


Greece is preparing a new bond issue after its credit rating was upgraded by one of the three main rating agencies, said the finance minister of Greece on Monday.  Fitch Ratings on Friday upgraded Greece’s credit rating to BB from BB- stating economic growth and fiscal prudence were the leading factors to government debt remaining at sustainable levels.  Greece which stumbled from crisis to engaging in economic reforms in return for bailout money, that kept it afloat between 2010 and 2015, started making regular appearance in the bond markets in 2017.  The Public Debt Management Agency (PDMA) said in December that it could tap bond markets this year to borrow 4 billion to 8 billion euros with the main aim to improve the liquidity of its yield curve, enhance its investor base and maintain regular market operations.  Greece has emerged from its bailout programmes in August 2018 and has accumulated a cash buffer of about 32 billion euros, enough to cover four years of maturing debt, assuming T-bills are rolled over.

Currency Roundup

Sterling was broadly steady on Monday ahead of key Bank of England interest-rate decision later in the week.  The Canadian dollar fell to a seven-week low against the US Dollar weighed down by lower oil prices as investors dumped commodity-linked currencies on fears of spread of the virus.  Investors are worried about the impact of the virus on travel, tourism and the global economy.   Sterling slipped to a one-week low against the dollar and weakened against the euro on Tuesday amid concerns of Britain’s future relationship with the EU.  Sterling was also a third of a percent weaker against the euro at 84.66 pence, its lowest in almost a week.  Other major currencies were stable with the dollar hovering at an eight-week high and the Swiss franc holding near the highest in almost three years as investors focused on the economic fallout from the virus.  The Australian dollar lead losers.  The euro/Swiss franc cross, a pair highly correlated to risk sentiment, reached 1.0666 francs per euro, the lowest since April 2017, before recovering to 1.0690 francs per euro.   Japan’s currency has risen against greenback for the last five trading sessions due to higher risk aversion.  The Canadian dollar was little changed against the greenback on Tuesday, holding close to its weakest level in nearly seven weeks.  Canada is a major exporter of commodities including oil, so its economy could be hurt by a slowdown in the global economy.  The dollar held near its two-months highs on Wednesday whilst other safe-haven currencies stabilised.  The strength of the dollar and the relatively positive performance of the US economy has underlined it as a safe-haven currency.   So far in 2020, the greenback was 1.8 percent higher against a basket of currencies, ahead of a Federal Reserve meeting on Wednesday.  Meanwhile the Australian dollar edged higher from the three-month lows on Wednesday, after inflation data proved firm enough for investors to rule out any chance of a rate cut next week.  Consumer Prices rose an annual 1.8 percent in the December quarter, just topping forecasts of 1.7 percent.   On Wednesday, before the BOE meeting, where the committee was due to announce its rate decision on Thursday, sterling remained in sight of one-week lows against the dollar.   On Thursday sterling reached $1.31 after the Bank of England kept interest rates at 0.75 percent and against the euro, the currency gained 0.5 percent to 84.16 pence.

Market Update

Monday saw US Treasury yields falling to three-month lows amid concerns over the economic impact of China’s spreading coronavirus.   On Tuesday, the benchmark 10-year note yields fell as low as 1.57 percent overnight, the lowest since 10 October, before rising back to 1.62 percent. Hence for the first time since October, a key part of the yield curve briefly inverted, as investors continued to assess the economic impact from the virus outbreak.  The recent drop in yields, however, shows an increasing expectation that the US central bank will cut rates later this year.  Tuesday saw European stocks edging higher after a huge wipe out of around 180 billion euros of market capitalisation from the European company’s index after experiencing the previous day‘s worst day in about four months amid heightened concerns about the potential impact on businesses from the coronavirus outbreak.  On Tuesday, eurozone government bond yields continued with the previous day’s sell-off as investors worried about the impact of the virus in China spreading.  Investors were snapping safe-haven bonds and pushing long-term yields lower.   On Wednesday, bank stocks raised European shares after strong results at the beginning of the earnings season.   The pan-European STOXX 600 rose 0.6 percent, clawing back most of its losses from a sell-off on Monday.  On Thursday after the meeting, the ten-year British government bond yield rose to 0.53 percent from a three- and- a half month lows of 0.484 percent. Meanwhile, the FTSE 100 equity index fell 1.1 to session lows as the pound rose.    Meanwhile on Thursday, stocks across the globe tumbled as the death toll from the virus spreading in China reached 170, with airlines cutting flights and stores to close amid the potential of an economic hit from the outbreak.  European shares fell for the first time in three sessions on Thursday on disappointing earning updates.

FED Meeting

At its first policy meeting of the year, the Federal Reserve held interest rates steady on Wednesday, through an unanimous decision to maintain the key overnight lending rate in a range of between 1.5 percent to 1.75 percent.   The head of the US central bank pointed to continued moderate economic growth and a “strong” job market but gave no sign of any imminent changes in the borrowing costs.

US Goods Trade Deficit

The US goods trade deficit increased sharply in December amid a rebound in imports, offsetting a small rise in exports.  Meanwhile, trade is still expected to have supported economic growth in the fourth quarter.  The Commerce Department said on Wednesday that the goods trade gap surged 8.5 percent to $68.3 billion last month.  The goods trade deficit had dropped for three straight months driven by declining imports.  In December, goods imports surged 9 percent to $205.3 billion after decreasing 1.3 percent in November.  Imports were boosted by industrial supplies, food, consumer and capital goods.  Meanwhile, exports of goods rose 0.3 percent last month to $137 billion after increasing 0.8 percent in November.  There were also increases in exports of industrial supplies and capital goods.


Crude prices extended declines on Monday, dropping below $60 for the first time in nearly three months as the number of deaths in China rose and more businesses are forced to shut down, raising expectations of slowing oil demand.  OPEC wants to extend the current oil output cuts until at least June, with the possibilities of further reductions on the table if the demand for oil in China is drastically affected by the spread of new coronavirus, said OPEC sources.  As oil prices dropped in the past few days, OPEC officials were alarmed as the virus that hit China and several other countries raised concerns to hit economic growth and oil demand.


Earlier in the year 2019, central banks and investors had bought large amounts of gold, pushing the price of gold up 18 percent in 2019 to the highest level since 2013.  Meanwhile, global demand for gold fell in the last three months of last year as sales of gold, jewellery, bars and coins declined alongside purchases by central banks and financial investors, said an industry report on Thursday.  Gold is considered as a safe investment during times of political and economic uncertainty and becomes popular when interest rates fall as happened last year.  Meanwhile, gold has been one of the beneficiaries from the outbreak of the deadly new coronavirus in China, acting as a safe-haven.  About half of the physical gold market is made up of just two countries, China and India, with gold demand in these two countries is already struggling amid slower economic growth and higher bullion prices.

Malta:  Unemployment Rate – December 2019

In December 2019 the seasonally adjusted monthly unemployment rate was 3.4 percent.  For the same month, the seasonally adjusted rate for males was 3.4 percent while that for females was 3.5 percent.  Meanwhile, those aged 15 to 24 years was 10.5 percent while the rate for the 25 to 74 years stood at 2.5 percent.

Malta:  Industrial Producer Price Indices – December 2019

When compared to the same month of the previous year, the industrial producer price index during December 2019 registered an increase of 1.6 percent.  This was due to a rise in intermediate goods, capital goods, and consumer goods.  There were no price changes in the energy sector.  During December 2019, the industrial producer price index registered a drop of 0.17 percent over November amid prices decreases in intermediate goods, and in consumer goods.  There were no changes in the energy and capital goods sectors.

Malta:  Expenditure of General Government Sector

Total Government expenditure increased by EUR 475 million over 2017, amounting to EUR 4,528.5 million.  Social protection remained the core function of government expenditure in 2018, representing 29.8 percent of the total Government expenditure followed by Economic Affairs, Health and Education.


Antonella Mercieca

Client Relationship Manager


Reuters, https://nso.gov.mt


January 31st, 2020

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