“China’s Stimulus Measures…”

China’s Stimulus Measures

As the coronavirus continued to hit the news, China’s central bank unexpectedly lowered the interest rates on reverse repurchase agreements by 10 basis points on Monday, as authorities have stepped up measures to relieve pressure on the economy from the spreading of the coronavirus.  On its website the PBOC said that it was lowering the 7-day reverse repo rate to 2.4 percent from 2.5 percent and cutting the 14-day tenor to 2.55 percent from 2.65 percent.  The cut came along after the Chinese markets reopened after an extended Lunar New Year holiday, when the death toll from the virus and its spread increased.  Furthermore, the PBOC injected a total of 1.7 trillion yuan through reverse repos on Monday and Tuesday as the central bank said it sought to stabilize financial market expectations and restore market confidence.

China’s Plans To Cut Tariffs

China plans to half tariffs on some US goods, which could help to improve negotiating conditions for a second phase of trade deal between the US and China after the signing of the Phase 1 agreement. The latter had indicated no further escalation.

Germany’s Industry Orders Slump

German Industrial orders unexpectedly tumbled in December on weaker demand from other EU countries, according to data on Thursday.   This indicates that a manufacturing slump will continue to hamper Germany’s growth.  The Statistics Office said, that contracts for “Made in Germany” goods fell by 2.1 percent from the previous month, representing the biggest drop since February.  The Economy Ministry, whilst commenting on the figures said that the major fluctuations in foreign demand for large transport equipment accounted for about a third of the drop-in demand in December.   He further added, “Overall, the outlook for the industrial economy remains subdued.”  Manufacturers who are export dependant are struggling with sluggish demand from abroad as well as business uncertainty linked to trade disputes and Brexit.  Chancellor Angela Merkel’s ruling coalition is at odds as to how to spend the federal government’s budget surplus of 13.5 billion euros.  Whilst her conservatives are calling for corporate tax cuts, centre-left Finance Minister Olaf Scholz wants more public investment.

UK – Strong Services PMI And Other News

A strong reading of the UK services PMI for January resulted in a stronger sterling on Wednesday, but it was close to the six-week low it hit this week after Britain‘s trade talks with the EU.  The purchasing manager’s index for the services industry which is the biggest contributor to Britain’s GDP was revised to 53.9 for January, up from 52.9.  This was the strongest reading since September 2018.    On a different note, Chancellor Sajid Javid is expected to present new budget of the recently formed government on 11 March, but tensions between Johnson’s allies and Javid are rising as Javid is threatening on imposing serious spending constraints on the government.  Chief special adviser to Johnson is pushing through a number of big spending commitments in areas such as health and police and to revive areas such as the North and Midlands.

The EU And Britain’s Talks

The EU and Britain clashed over a post Brexit deal on Monday after Boris Johnson insisted that he does not need to sign up to the bloc’s rules and Brussels warned of tariffs and quotas unless he did.   As Britain want to negotiate a trade deal by the end of 2020, EU leaders say that the further Britain diverges from their rules, the less access it will have to the EU market.  Johnson further said that the choice for Britain was between a deal like Canada has with the EU or a much more distant deal like Australia.  The EU’s Brexit negotiator said that European Union wants an ambitious zero-tariffs and zero-quotas trade deal with Britain but this will be conditional on open and fair competition between the two.  Meanwhile, Michael Barnier said that there should be a level playing field over the long term on social, state aid and environmental standards.  He further added that the more the EU and Britain have common standards, the higher the quality of access Britain has to the European single market.  As Barnier, spoke a 33-page draft mandate for negotiations, which was released had one section in bold, and that read: “the envisaged partnership must ensure open and fair competition, encompassing robust commitments to ensure a level playing field.” It further said that the partnership should ensure “common high standards” in state aid, competition, state-owned enterprises, labour and environmental standards and “relevant” tax matters.  Trade talks will begin in March.

Greek Debt

Greek Bonds are currently ineligible for purchase as they are rated ‘junk’ by all major rating agencies thus failing a key ECB criterion.  Meanwhile, ECB President Christine Lagarde said on Thursday, that the Greek economy continues to improve and based on the criteria that the bank applies to the purchases, the chances are rising that the European Central Bank will eventually buy its debt under its asset purchase scheme.

Lagarde On Eurozone’s Growth

In a parliamentary hearing on Thursday, European Central Bank President Christine Lagarde said that eurozone growth remains modest but there are tentative signs of stabilization even if the coronavirus outbreak in China clouds the horizon.   As the ECB has kept its ultra-easy policies for years to boost growth, Lagarde said that this support was still needed to safeguard the currency bloc from global headwinds.  Lagarde also said that whilst the uncertainties surrounding the global economic environment remain high, those that relate to the trade tensions between the US and China are receding.  However, she also said that the “uncertainty surrounding the impact of the coronavirus are a renewed source of concern.”  She added that whilst the economy remains resilient, with consumption still rising, unemployment is at a 12-year low and employment at record highs.  She said that “there are tentative signs of stabilization” however, “forward-looking indicators have come in slightly more optimistic.”  With regards to inflation, which is the ECB’s primary objective, it remains weak amid the low growth which is stopping the build-up of inflationary pressures.  Another point mentioned by Lagarde is that rock bottom interest rates are encouraging riskier borrowing and have fuelled a property boom in key markets, hence requesting increased vigilance from the ECB.

Oil

On Tuesday oil prices found background on hopes for additional production cuts from OPEC.  The gains marked a rebound after an extended slide over the past two weeks on concerns that the global economic impact of China’s coronavirus, that pushed crude prices on Monday to their lowest in more than a year.   On Wednesday, oil prices climbed more than 3 percent on reports that scientists have developed a drug against the coronavirus as the latter continued to weigh heavily on global economic activity.  Furthermore, news that the Organisation of the Petroleum Exporting Countries and its producer allies are considering further output cuts, after weighing on Tuesday at a meeting, the impact on global oil demand and economic growth from the virus. to offset a potential squeeze on global oil demand.

Currency Roundup

On Monday Sterling fell sharply as British Prime Minister set out tough terms for European Union talks, raising fears that Britain would reach the end of an 11-month transition period without agreeing a trade deal.  Sterling rebounded off six-weeks lows against the dollar on Tuesday after better than expected construction activity data offset the fears of a hard Brexit fuelled by the government’s tough stance in the EU talks.  Also, on Tuesday China’s yuan marked the biggest one-day weakening in percentage terms since 30 July 2018 reflecting the pressure on the currency from economic worries.  On Wednesday the dollar climbed towards a recent two-month high amid firmer Asian markets and expectations that Beijing will manage to limit the spread of the virus.  Furthermore better-than expected employment data underlined the relative strength of the US economy.  The strengthened yen, however, indicated that broader sentiment remained cautious.  Against a basket of its rivals, the dollar rose 0.1 percent to 98.02 advancing for a third consecutive day and within the distance of a two-month high of 98.19 hit last week.  Whilst Norway is a major oil exporter, the Norwegian crown failed to draw any support from firmer oil prices.  After dropping to as low as $1.2957 on Wednesday, sterling recovered marginally and was down 0.1 percent at $1.2983 in early trade on Thursday.  It moved lower on Thursday on concerns about negotiations between Britain and the European Union for a post-Brexit deal that rattled investors.  A broadly stronger dollar also weighed. On Friday Euro fell to its lowest since October after German industrial output for December recorded its biggest decline in a decade and strong employment numbers in the United States encouraged investors to buy the dollars.  Meanwhile the Australian dollar which is often seen as a proxy for China, weakened 0.5 percent to $0.6699, after the Reserve Bank of Australia slashed growth forecasts in its quarterly economic outlook, blaming bushfires and the coronavirus.

Markets Wrap

European shares climbed on Monday after recovering from their worst week in nearly seven months as worries remained over the fallout of the virus outbreak.  Blue-chip British stocks added about 0.3 percent after BREXIT has ended years of financial and political turmoil.  Chinese stock markets crashed at the opening after a long holiday.  Also, eurozone bond yields inched up but remained within multi-month lows as investors remained cautious over the repercussions from the virus.  On Tuesday, eurozone government bond yields rose as bond investors assessed the economic repercussions of the coronavirus and the measures taken by China to tackle the spread.  The NASDAQ hit a record high on Tuesday, whilst the S&P posted the biggest one-day gain in about six months amid fears of a heavy economic impact from the coronavirus and the intervention of China’s central bank.  Gains in technology heavyweights helped Wall Street main indexes to climb for the second day, and fresh intervention by the China’s central bank calmed investor nerves.   Wednesday saw US Treasury yields rising as traders reacted to positive reports on the efforts to counter the coronavirus and strong private-sector jobs report.  Other US and European markets reacted to the news that a Chinese university team found a drug to virus victims and to UK’s researchers stating they made a “significant breakthrough” in finding a vaccine. On Wednesday, the World Health Organisation played down media reports of breakthrough drugs.   Meanwhile, ADP reported on the same day that US private-sector payrolls rose by 291,000 jobs in January, the highest increase since May 2015.     The benchmark 10-year yield was up 3.8 basis points in morning trading at 1.6387 percent.  On Thursday European shares rose to a record high as China plans to cut tariffs on some US goods and strong earnings.  With the news, Germany’s benchmark 10-year Bund yield rose to its highest level in almost two weeks.

Malta:   Motor Vehicles Q4 2019

In the fourth quarter of 2019, the stock of licensed motor vehicles increased by 12,182 vehicles or 3.2 percent over the same quarter in 2018.  As at December 2019 the stock of licensed motor vehicles stood at 397,508.  During the quarter under review, the stock of licensed motor vehicles increased at a net average rate of 28 vehicles per day.  Newly licensed vehicles put on the road during the period under review amounted to 6,154, with newly licensed ‘new’ motor vehicles amounted to 2,519 or 40 percent of the total, whilst newly licensed ‘used’ motor vehicles totalled 3,635 or 59.1 percent.

Malta:  Inbound Tourism

Total inbound visitors for December 2019 were estimated at 144,706 an increase of 17.9 percent when compared to the corresponding month in 2018.  Total tourist expenditure was estimated at EUR 98.3 million an increase of 25.4 percent over the corresponding month in 2018.  Meanwhile, in 2019, inbound tourist trips totalled nearly 2.8 million, an increase of 5.9 percent over the same period in 2018.  Total tourism expenditure was estimated at EUR 2.2 billion, 5.7 percent higher than that recorded in 2018.

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