“Delay In Tariffs …”

Delay In Tariffs

The Trump administration will delay imposing a 10 percent tariff on certain Chinese products, including laptops and cell phone, that had been scheduled to start next month, said the Office of the US Trade Representative (USTR) on Tuesday.  The USTR said in a statement, other products whose tariffs will be delayed until 15^th December include, “computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.”  It further added that a separate group of products will also be exempt altogether, “based on health, safety, national security and other factors.”  Those investing in technology stocks welcomed the news, pushing an index of chip stocks up 2.8 percent and Apple stock surged more than 5 percent.  In a statement on Tuesday, the Chinese Ministry of Commerce said that US and Chinese trade officials spoke on the phone and agreed to talk again within two weeks.  The news that the United States will delay tariffs supported Asian stocks, however, optimism in the currency market quickly faded on broader concerns such as no quick solutions to the trade war which is threatening global growth.

US Import Prices

US import prices unexpectedly rose in July, but the underlying trend continued to be weak pointing to subdued imported inflation pressures.  The report from the Labour Department on Wednesday suggested inflation could remain moderate despite a broad increase in consumer prices in July.  This could allow the Federal Reserve to cut interest rate to limit damages to the economy from trade tensions.  The government said that import prices increased 0.2 percent last month as a rebound in the cost of petroleum products offset declines in prices for capital goods and motor vehicles.

China’s Industrial Output

China’s industrial output in July rose 4.8 percent from a year earlier, which was below the median estimate for a 5.8 percent year-on-year increase and marked the slowest growth since February 2002, data showed on Wednesday. Retail sales and fixed-asset investment in July also grew less than forecast, signalling that the trade war is hitting the health of the world’s largest economy.

China’s Sovereign Digital Currency

China’s central bank is “almost ready” to issue the country’s own sovereign digital currency, said a People’s Bank of China Official.  China’s central bank set up a research team in 2014 to explore the possibility of launching its own digital currency to cut the costs of circulating traditional paper money and boost policymakers’ control of money supply.  So far however, no details of its plans have been issued.  According to the official, the issuance of the digital currency will rely on a “two-tier” system whereby both the central bank and financial institutions will be legitimate issuers.  He further added that the digital currency would not solely rely on blockchain technology as current blockchain technology would not be able to handle transaction volumes in China.

Brexit

Prime minister Boris Johnson who took office last month has pledged to leave the European Union on 31^st October with or without an agreement on the terms of Britain’s departure.  Meanwhile the EU has so far said it will not renegotiate a deal reached by Theresa May ,which was rejected by the British parliament.

Italy – Ratings Relief

Fitch Ratings on Friday maintained Italy’s sovereign credit rating at ‘BBB’ and its outlook at negative, citing a high level of general government debt, low-trend GDP growth, policy risk and uncertainty arising from current political dynamics.  The 10-year bond yield fell from a five-week high on Monday after Fitch’s decision on Friday.  It also provided some relief to the market which was effected by the prospect of early elections in the eurozone’s third biggest economy.  The call by leader Matteo Salvini’s for snap elections faces mounting resistance from other parties and requires a no-confidence vote in parliament to succeed.  Salvini is pushing for a no-confidence vote this week to bring down the government his party formed with the 5-Star Movement last year, while opposition parties would prefer to wait until 19^th – 20^th August.  The decision lies with the heads of political groups in the Senate.  The 5 Star is not seeking a deal with the opposition to delay new elections, but the timing of the vote must be decided by the head of state, party chief Luigi Di Maio said on Monday.

French Annual Inflation

French consumer prices fell 0.2 percent month on month in July and annual inflation eased to 1.3 percent from 1.4 percent in June, according to final data from the statistics institute INSEE on Wednesday, which is in line with preliminary figures.  Inflation eased in France at a time when the ECB (European Central Bank) eyes new measures to stimulate activity in the EU.

German Investor Morale

According to a monthly survey, the mood among German investors plummeted far more than expected in August.  The ZEW institute blamed trade disputes and higher chances of a no deal Brexit for a worsening outlook in Europe’s biggest economy.  ZEW said its monthly survey showed economic sentiment among investors fell to -44.1 from -24.5 in July, its lowest level since December 2011.  After ZEW published the survey, Germany’s DAX  hit a day’s low.  ZEW President said that the survey pointed to a significant deterioration in the outlook for the German economy.  He said in a statement, “the most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth.”  He further added that, “this will most likely put a further strain on the development of German exports and industrial production.”

The British Economy

The British economy shrank unexpectedly for the first time since 2012 in the second quarter, dragged down by a slump in manufacturing.  Gross domestic product fell at a quarterly rate of 0.2 percent in the three months to June.  Year-on-year economic growth slid to 1.2 percent from 1.8 percent in the first quarter, said Britain’s Office for National Statistics, which is its weakest since the beginning of 2018.  Annual growth in June alone was the weakest since August 2013 at 1 percent.

UK Jobs Data

Labour Market data is showing the fastest pay growth in 11 years and more people in work show the underlying strength of the British economy, said finance minister Sajid Javid.  In a statement he said, today’s figures are another sign that despite the challenges across the global economy, the fundamentals of the British economy are strong as we prepare to leave the EU.”  Official data showed that, total earnings growth including bonuses, rose by an annual 3.7 percent in the three months to June, the highest rate since June 2008 and rising from 3.5 percent in May.  Excluding bonuses, pay growth picked up to 3.9 percent from 3.6 percent, said the Office for National Statistics.  Tuesday’s figures showed Britain created 115,000 jobs in the second quarter, bringing the level of employment to a record 32.811 million.  Meanwhile the unemployment rate also rose to 3.9 percent while expectations to hold steady were at 3.8 percent.

Markets Wrap

Worries that a prolonged China-US trade war could hit the US economy and global economies into recession, weighed on Asian equities on Monday offsetting the lift from Chinese shares and a stronger than expected daily fixing for the yuan.  European stocks were expected to recover on Monday after a second week of losses.  On the same day the International Monetary Fund said it stood by its assessment that the value of China’s yuan was largely in line with economic fundamentals. Furthermore Monday saw Australian shares .AXJO dipping by  0.17 percent and Indonesian shares .JKSE falling by 0.53 percent.  Trading activity was muted in view that regional markets including Japan, Singapore and India closed for holidays on Monday. UK shares dropped on Tuesday amid worries over protests in Hong Kong, US-China trade war, and the health of the British economy.  The protests in Hong Kong which are now in their tenth straight week have hurt shares of blue-chip companies with dealings in Asia.  The trade war and concerns over the health of the economy have offset any benefits the exporter-heavy FTSE 100 could benefit from a weaker pound.  The index is on track for its biggest monthly fall since October 2018. Furthermore, UK-focused banks and other stock that focus domestically have been hit by the Brexit jitters.  Eurozone government bond yields dipped on Tuesday, with Germany’s 10-year benchmark reaching new lows amid concerns over Brexit and the turmoil in Italy that drove investors into safe-haven assets.  Economic woes and expectations of more monetary policy easing are pushing down bond yields globally.  Japanese 10- year yields hit three-year lows.  In a note on Monday, Fitch said that there are now nine sovereigns with 10-year bonds that trade at market prices implying a negative yield to maturity.  The nominal stock of government debt with negative yields is about $15 trillion.  After sharp rises seen on Friday, Italian yields were down up to six basis points across the curve, falling for the second straight trading day amid a call from League leader Matteo Salvini to dissolve the government.  On Wednesday Britain’s government bond yield curve inverted for the first time since the global financial crisis. This is taken a sign that some investors think a recession is nearing.  According to data from Refinitiv, the yield on the 10-year gilt fell below the yield on the two-year gilt for the first time since August 2008.  Normally, a yield curve slopes upwards as investors expect to be compensated for taking on the risk of owning longer-dated debt.  The US treasury bond curve inverted on Wednesday as well for the first time since 2007, a sign that investors are concerned that the US is heading into a recession.

Currency Roundup

On Tuesday the sterling held near 2 ½ year low amid concerns about a no-deal Brexit effected sentiment , even though wage growth in the UK rose to an 11-year high.   Whilst against the dollar, the pound edged 0.1 percent lower at $1.2066,  it was broadly steady against the euro at 92.79 pence.   On Wednesday the dollar index .DXY measuring the greenback against a basket of six currencies, was little changed at 97.755 after jumping 0.4 percent on Tuesday.  The Eur was unchanged at $1.1172 but dropped to 119.07 yen.  Meanwhile, sterling was little changed at $1.2061 but remained within the level of $1.2015, the lowest level since January 2017.  On Wednesday the yen held on to gains as weaker-than-expected Chinese economic data reinforced the view that resolving the trade war was not imminent.  The offshore yuan remained lower against the dollar after data from China’s industrial output increased at a slowest pace in more than 17 years.

Oil

Oil prices fell on Monday amid worries about the global economic slowdown and the ongoing US-China trade war, which reduced the demand for oil.   Although the third quarter is the strongest season for the demand of oil as people go on holiday, the US-China trade dispute has weakened the demand and reduced crude prices.  On Tuesday oil prices jumped by the most so far this year after the United States said it would delay imposing a 10 percent tariff on certain Chinese products, easing concerns over the global trade war.  Since falling to their lowest level since January, on 7^th August Brent has gained 9 percent and West Texas Intermediate (WTI) crude 12 percent.

Gold Prices

Gold prices held steady on Monday, trading near the $1,500 level as uncertainties around the US-China trade war and concerns about slowing global economic growth offered support.    As concerns around protests in Hong Kong and the Argentine currency crash caused fears of a global slowdown, investors fled equities and moved into safe-haven assets such as gold.  The price of gold hit its highest in more than six years on Tuesday.   On Monday protesters managed to shut down Hong Kong’s airport, which is the world’s busiest cargo airport.  The protests which started as opposition to an extradition bill to mainland China, have expanded into wider calls for democracy.  Meanwhile fears of a possible return to interventionist policies took over the Argentine market after President Mauricio Macri lost by a much bigger-than-expected margin in presidential primaries.  All this uncertainty in addition to fears of the US-China trade war has rattled financial markets spurring investors to safe-haven assets.  Bullion, along with the Japanese yen and the US Treasuries is seen as a relatively safe investment in times of political and financial uncertainty.  Reflecting investor’s interest in gold, holdings of SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, jumped 0.9 percent to 847.77 tonnes on Monday from Friday.

DBRS Confirms Malta’s Rating

DBRS Ratings GmbH (DBRS) confirmed the Republic of Malta’s Long-Term Foreign and Local Currency – Issuer Ratings at A (high).  At the same time DBRS confirmed the Republic of Malta’s Short Term Foreign and Local Currency – Issuer Ratings at R-1 (middle).  The trend on all ratings is Stable.  The Maltese economy grew close to 7 percent in 2018.  DBRS expects gross domestic product growth to moderate in the coming years amid less favourable global backdrop and high capacity utilisation.  Despite this anticipated deceleration, the International Monetary Fund (IMF) projects Maltese average annual GDP growth to remain high at 3.9 percent between 2019 and 2024.  Malta’s fiscal surplus stood at 2 percent of GDP and the debt-to-GDP ratio declined to 46 of GDP. Malta’s A (high) rating is supported by its eurozone membership, moderate level of public debt, solid external position and households’ strong financial position.  Meanwhile, given its size and openness of the Maltese economy, with sectors such as tourism, gaming and financial services highly reliant on external demand and foreign capital, Malta remains exposed to external demand or confidence shocks.

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