“Democrats Capture House Control As Republicans Hold Senate….”

Democrats Capture House Control As Republicans Hold Senate

In mid-term elections two years after winning the White House, Trump and his fellow Republicans expanded their majority in the US Senate following a divisive campaign marked by fierce clashes over race, immigration and other cultural issues.  However, his party lost its majority in the House, with results representing a bitter setback for Trump.  Democrats appeared headed to a gain of more than 30 seats well beyond the 23 they needed to claim their first majority in the 435-member House in eight years.  Democrats gained control of the House of Representatives, while Republicans increased their majority in the Senate.  The newly empowered House Democrats will have the ability to investigate Trump’s tax returns, possible business conflicts of interest and allegations over his 2016 campaign links to Russia.  They could also force Trump to scale back his legislative ambitions, possibly condemn his promises to fund a border wall with Mexico and pass a second major tax-cut package or carry out his policies on trade.

Turkey And Renewed Sanctions On Iran

On Tuesday President Erdogan said that Turkey would not abide by the renewed US Sanctions on Iran’s oil and shipping industries as they were aimed at “unbalancing the world”.  On Monday Washington re-imposed the sanctions ditching a 2015 deal between world powers and Iran over its nuclear programme.  The US temporarily allows some major countries including Turkey, to continue buying Iranian crude. Turkey is a NATO member that heavily depends on imports to meet its energy needs and neighbouring Iran has been one of its main supplier of oil due to its proximity, the quality of crude and favourable price differential.  Erdogan spokesman, Ibrahim Kalin, mentioned a temporary waiver period of six months and said Turkey would evaluate developments during this time when holding talks following the end of their exemption.  President Trump aims to hit Iran’s economy and force it to abandon not only its nuclear ambitions and ballistic missile programme but also its support for militant proxies in Syria, Yemen, Lebanon and other parts of the Middle East.

Brexit And The Sterling

On Wednesday sterling rose for a third consecutive day, amid a report that Britain is preparing for a Brexit agreement by the end of November.  The pound is benefiting from growing hope among investors that Britain is close to reaching a deal with the European Union less than five months before it leaves the bloc. It is however unclear if an agreement on that issue can be reached in time to hold an emergency summit of EU leaders in November to sign off a deal.  Against the dollar the pound hit a two-week high of $1.3144 and traded flat against the euro at 87.26 pence.  It is unclear if an agreement on the issue can be reached on time to hold an emergency summit of EU leaders in November to sign off on a deal.  Both Britain and the EU wish to keep the border between EU-member Ireland and the UK province of Northern Ireland free of frontier controls after Brexit.  This is seen as crucial to the 1998 Good Friday peace accord that ended decades of bloodshed in Northern Ireland.  On Thursday sterling rose for a fourth consecutive day as investors hung tightly to hopes of an imminent Brexit deal despite reports a cabinet meeting to agree on the UK negotiating position has been postponed until next week.

Italy

On Tuesday Italian government bond yields rose after Eurozone finance ministers called on Italy to change its budget and raised the threat of sanctions.  According to the EU’s economics commissioner on Tuesday, the European Commission could impose sanctions on Italy as a last resort, but Brussels wants to avoid the option.   This followed the European meeting held on Monday which did nothing to address the situation between Rome and the EU.  It reignited concerns that Italy’s expansionary 2019 budget was a threat to the euro system.  The bond selloff was small compared to the recent heavy selling of Italian bonds.  The 10 year bond yield rose as high as 3.4 percent, pushing the gap over the German Bund yields to 298 bps from 289 bps late on Monday.  Other bonds such as the German benchmark 10 year yield was down one basis point on the day at 0.41 percent while the French 10 year yield was also down 1 bp at 0.79 percent.  On Thursday, Italian government bond yields rose to a session high, while the euro dipped, after the European Commission cut Italy’s growth forecast and said it anticipated a jump in the country’s structural budget deficit.  Italy’s 10 year bond yield rose 3.404 percent, up six basis points on the day and the euro turned negative slipping 0.1 percent to $1.1412 but remaining above the session low.  The European Commission forecasts that the Italian economy would grow more slowly in the next two years than Rome is expecting, making government budget deficits much higher than assumed by Italy, while public debt would be stable rather than decline.  Italy has rejected the European Commission’s latest criticism of its budget, accusing it of sloppy and outdated analysis.  Finance Minister Giovanni Tria said the numbers come from an “inadequate and partial analysis” and he added that the EU ignored “clarifications provided by Italy.”  It indicates an entry into yet another dispute over the expansionary budget.  After the report the 10 year yield went up seven basis points to 3.41 percent.  The spread over the German bonds widened, though remained below recent highs.

Euro Zone Economy

Euro zone business growth slumped to a two-year low in October as growing trade tensions and tariffs, alongside rising political uncertainty, has put a dent in exports and optimism, showed a survey on Tuesday.  IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI) which is considered as a guide to economic health, fell to 53.1 in October from 54.1 in September, which is its lowest since September 2016.  It is still comfortably higher than the 50 mark that separates growth from contraction.  Official figures showed that industrial orders in Germany rose just 0.3 percent in September and the final German services PMI was revised up to 54.7 from a preliminary reading of 53.6, the biggest upward adjustment in the survey’s history.  As a whole the bloc’s economy expanded 0.2 percent in the third quarter, official data showed last month.  Meanwhile, Italy’s service sector contracted for the first time in more than two years last month, a sign the Eurozone’s third largest economy is struggling.

The FED, The Dollar And The Yen

The US Federal Reserve kept interest rates steady but reaffirmed its monetary tightening stance, setting the stage for a rate hike in December.  With the news, the dollar gained versus the euro and the sterling on Friday.    This year the FED raised its key policy rate three times, and the market expects another rate hike in December on the back of robust US economy, rising inflation and solid jobs growth.  In the foreign exchange markets investors are looking into the divergence between monetary policies of the United States and other major currencies, such as Japan, where interest rates seem to be staying extremely low.  The yen is presently at a near five week low against the dollar.  The dollar has gained 2.24 percent versus the yen over the last 10 trading sessions due to the diverging monetary policies of the Fed and the Bank of Japan.

US Weekly Jobless Claims

New applications for US unemployment fell slightly last week and the number of Americans receiving benefits remained at a 45-year low as strong labour market conditions continued.  Initial claims for state unemployment benefits dropped by 1,000 to a seasonally-adjusted 214,000 for the week ended 3^rd November, said the Labour Department on Thursday.  Ongoing strong job growth has led to a 3.7 percent unemployment rate, the lowest since the 1960s and a level below Federal Reserve policymakers’ current median estimate of “full employment”.

New Duties On Chinese Aluminium Sheet Products

The US Commerce Department on Wednesday said it would impose final anti-dumping and anti-subsidy duties on Chinese common alloy aluminium sheet products of 96.3 percent to 176.2 percent.  The trump administration has promised a more aggressive approach to trade enforcement by having the Commerce Department launch more anti-dumping and anti-subsidy duties on behalf of private industry.  The first aluminium sheet duties, however, were reduced from those first imposed in April and July.  According to the Commerce Department, in 2017, imports of common alloy aluminium sheet from China were valued at an estimated $900 million.  The flat-rolled product is used in transportation, building and construction, infrastructure, electrical and marine applications.   China’s aluminium exports fell by 3.6 percent from September to 482,000 tonnes in October, the lowest since May, according to customs data released on Thursday.

China’s October Crude Imports

China’s crude oil imports rose to an all-time high on a daily basis in October, supported by record demand from private refiners and healthy margins, as shown by customs data on Thursday.  Imports in October surged 32 percent from a year earlier to 9.61 million barrels per day, according to data from the General Administration of Customs.   The imports rose 8.1 percent for the first 10 months of the year from the same period last year to 377.16 million tonnes on track for another record year of shipments.  The record volumes were a result of strong imports from China’s private refiners known as “teapots.”

China’s October Exports

China reported much stronger than expected exports for October, as shippers front-loaded goods to the United States, which is its biggest trading partner, in order to beat off the higher tariff rates that are due to kick in at the start of next year.  Those who are worried about global demand and the country’s policymakers, after the economy showed its weakest growth since the global financial crisis in the third quarter, found some comfort in the upbeat trade readings from China.   The month of October was the first full month after the latest US tariffs on Chinese goods went into effect on September 24, in a significant trade war.  Analysts continue to warn of the risk of a sharp drop in US demand for Chinese goods in the beginning of 2019, focusing on whether the presidents of the two countries can make any breakthrough later this month.  Customs data showed on Thursday that China’s exports rose 15.6 percent last month from a year earlier. Washington has vowed to hike the tariff from 10 percent to 25 percent at the turn of the year, while Trump warned that if talks with Xi are not productive, he could quickly slap tariffs on another $267 billion of Chinese imports.  The main issues raised by Trump with China are intellectual property theft, entry barriers to US businesses and its persistently large trade surplus with the United States.  This year several rounds of talks appeared to yield no progress.

Market Wrap

On Wednesday, after Democrats won control of the US House of Representative, boosting the party’s ability to block President Donald Trump’s political and economic agenda, wall street stock and Asian shares lost steam.  On Wednesday, US stocks surged, as investors bought growth stocks such as technology and healthcare on the relief that the outcome of the US elections were as expected. Technology and healthcare stocks rose more than 1.5 percent each, with investors betting that a gridlocked Congress would not be able to push through restrictive regulations.  This was a fear that had weighed on the growth sectors.  After the steep sell-off in October, the S&P 500 remains down more than 5 percent from its record high as uncertainty about the election, and concerns over the rising interest rates and trade wars effect stocks.  Meanwhile, stocks surged driven by gains in technology and healthcare sectors as investors bet that a divided Congress would be a positive for equities.

Oil

On Wednesday oil rebounded towards $73 a barrel after falling to its lowest since August, supported by a report that Russia and Saudi Arabia are discussing oil output cuts in 2019.  Brent crude the global benchmark rose $1.18 to $73.31 a barrel.  US crude rose 28 cents to $62.49.  The Energy Information Administration on Wednesday said that US crude inventories rose last week, boosted by another jump in production to a new record, while gasoline stocks increased and distillate inventories fell.  After the EIA report, crude inventories rose by 5.8 million barrels in the week to 2^nd November, more than double analysts have expected for an increase of 2.4 million barrels.  Overall production increased to 11.6 barrels a day, a new weekly record.

Oil Sanctions And The Cost To Iran

Since May, sanctions have already cost Iran billions of dollars in oil revenue, when US President Donald Trump pulled out of the nuclear deal, said the US special representative for Iran.   He further added that “oil sanction have taken off 1 million barrels of Iranian oil off the market, and that alone has reduced the regime’s revenues by more than $2 billion.”  The United States imposed strict sanctions on Iran’s vital energy sector on Monday, which were lifted under the Iran’s 2015 nuclear deal with major powers.  Washington granted waivers to 8 countries.  The measures are an effort by US President Donald Trump to curb Tehran’s missile and nuclear programs and diminish the Islamic Republic’s influence in the Middle East.  US allies in Europe, which backed the 2015 agreement under which Iran agreed to curb its nuclear program in return for the lifting of sanctions, oppose the move Trump has taken.

Bitcoin

Bitcoin has experienced one of its worst annual price performances of its short 10 year old life, however it appears to have become stable in the process.  Volatility of the original and biggest cryptocurrency has sunk to its lowest for nearly two years.   Measured on a weekly basis, bitcoin volatility is set to fall to its lowest since the end of 2016, when the digital coin was still a niche asset.

Company News

BMW

BMW the German carmaker on Wednesday reported a 27 percent drop in third-quarter operating profit to 1.75 billion euros, missing analyst expectations amid currency headwinds and higher research and development expenses.  BMW said that despite a slight rise in deliveries of luxury cars, its operating return on sales for the automotive division narrowed to 4.4 percent from 8.6 percent a year earlier, well below its targeted range of 8 to 10 percent.  Earnings were hit by an increase in raw materials, currency effects, higher provisions for goodwill and warranty measures, tariffs between China and the United States and a price war in Europe, according to BMW.

Malta:   Inbound Tourism – September 2018

Total inbound visitors during the month of September were estimated at 279,010, an increase of 15.6 per cent when compared to the corresponding month in 2017.  Inbound tourists from EU Member States went up by 11.9 per cent to 224,405 when compared to the corresponding month in 2017.  Total tourist expenditure was estimated at EUR 242.7 million, an increase of 4.8 per cent over the corresponding month in 2017.  For the period January to September 2018 inbound tourist trips for the first nine months of 2018 reached 2,036,841 an increase of 15.6 per cent over the same period in 2017.

Malta:  Index of Industrial Production – September 2018

In September 2018, seasonally adjusted industrial production decreased by 1.5 per cent over the previous month.  When compared to September 2017, the index of industrial production adjusted for working days also decreased by 4.8 per cent.  Decreases were registered in the production of intermediate goods, capital goods, production of energy and consumer goods.

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