“ECB Monetary Policy Committee…”

ECB Monetary Policy Committee

The European Central bank kept its policies unchanged as expected on Thursday staying on track to end bond purchases this year and raise interest rates next autumn.  The ECB in a subtle shift said it would half its monthly bond purchases to 15 billion euros from October firming up its previous language, which said only that such a move was anticipated.  It maintained its stance that bond buys are expected to end by the close of the year and that interest rates will stay unchanged at least through to next summer.    ECB President Mario Draghi announced at his news conference small cuts to the Bank’s growth forecasts for this year and the next, citing weaker foreign demand, and noted external risks such as rising protectionism and financial market volatility. He further added that: “the risks surrounding the euro area growth outlook can still be assessed as broadly balanced”.   The bank now expects growth of 2 percent this year and 1.8 percent next, slightly lower than its previous forecast of 2.1 percent and 1.9 percent.  Meanwhile the bank maintained its forecast of annual inflation at 1.7 percent through to 2020, with Draghi insisting that it was consistent with the bank’s target of near 2 percent.  With yesterday’s decision, the deposit rate of the ECB which is its primary interest rate tool, will remain at -0.4 percent while the main refinancing rate, which determines the cost of credit in the economy will remain at zero.

Bank Of England Monetary Policy Meeting

The Bank of England kept interest rates on hold on Thursday and highlighted greater financial market concerns about Brexit.  This was a month after raising borrowing costs for only the second time in more than a decade.  According to the BOE, nine rate-setters voted unanimously to hold rates at 0.75 percent, in line with economist’s expectations and said there had been limited domestic developments since its 2^nd August meeting other than Brexit.  The BOE regional staff reported that businesses were tightening cost control and holding off on investment ahead of Britain’s March 2019 withdrawal from the EU.  There was little change in the Sterling after the decision.    The coming six to eight weeks are due to extensive talks to hammer out the details of the divorce deal.  On Thursday, Governor Mark Carney, whose term was extended until January 2020 this week, to help smooth the post-Brexit transition, briefed May and senior ministers on preparations for a ‘no deal’ Brexit.  Carney last week warned legislators that if Britain left the EU without a trade deal, economic difficulties could squeeze British households’ income for years to come.  On Thursday the central bank said that risks to global growth had risen, especially if the United States and China implemented protectionist trade measures.

Sweden Faces Political Deadlock 

After an election on Sunday, Sweden headed for a hung parliament that saw support for the nationalist Sweden Democrats surge.  An influx of 163,000 asylum seekers in 2015 has polarised voters and fractured the long-standing political consensus.  Almost all districts having reported, the ruling centre-left Social Democrats and Greens and their Left Party parliamentary allies had 40.6 percent of the vote, while the opposition centre-right Alliance was at 40.3 percent.  This gave the centre-left 144 seats in the 349-seat parliament against 142 for the Alliance, suggesting weeks of uncertainty before a workable government can be formed.

China’s Trade Surplus With The US

China’s trade surplus with the United States widened to a record in August even though the country’s export growth slowed slightly.  The surplus hit $31.05 billion in August, up from $28.09 billion in July, surpassing the previous record set in June, according to customs data.  Over the first eight months of the year, China’s surplus with its largest export market has increased by 15 percent, adding to tensions of trade war between the two largest economies.  The data showed that China’s annual growth in August moderated slightly to 9.8 percent which is the weakest since March but only slightly below recent trends.  Irrespective of the US Tariffs targeting $50 billion of Chinese exports in effect for their full month in August, China’s exports to the US still accelerated, growing 13.2 percent from a year earlier from 11.2 percent in July.  Meanwhile, China’s imports from the United States grew only 2.7 percent in August, a slowdown from 11.1 percent in July.   China started the year on a strong note, however its economic outlook is being clouded by the rapidly escalating US trade dispute and cooling domestic demand.  Trump on Friday of last week, threatened to impose duties on another $267 billion of goods on top of $200 billion in imports ready for levies in the coming days.  Imports, a key gauge of the strength of China’s domestic demand, grew 20 percent beating forecasts, but slowing from July’s surprisingly high 27.3 percent.  This resulted in China posting a smaller overall trade surplus of $27.91 billion for the month.  The surplus with the US was larger than China’s net surplus for the month, indicating China would be running a deficit, if trade with the world’s largest economy was cut off.

US Employment Report

US employment rose more than expected in July and wages picked up, supporting expectations of faster economic growth and raising the probability of a Federal Reserve interest rate increase this year.  Nonfarm payrolls rose by 255,000 jobs, after an upwardly revised 292,000 surge in June, with hiring broadly based across the sectors of the economy, according to the Labour Department.  In addition 18,000 more jobs were created in May and June than previously reported.  The unemployment rate was unchanged at 4.9 percent as more people entered the labour market.  After the release of the data, the US dollar rallied against major currencies, while yields rose on US government debt as traders increased their bets for an eventual Fed interest rate rise.  The Federal Reserve has raised interest rates for the first time in nearly a decade last December, but since then has held rates steady amid concerns over persistently low US inflation and a global economic growth slowdown.

US Treasury Yields

US Treasury yields across maturities dropped on Thursday morning after data showing US consumer prices rose less than expected in August.  This raises questions about the pace at which the Federal Reserve raises interest rates.  The Labour Department said its consumer price index increased 0.2 percent last month after a similar gain in July, as increases in gasoline and rent were offset by declines in healthcare and apparel costs.  Underlying inflation pressures also appeared to be slowing.  The Federal Reserve is expected to raise interest rates in September, however a rate hike in December is questionable as it depends on whether inflation stands in relation to the 2 percent threshold.

China And US Talks

The Trump administration had invited Chinese officials to restart trade talks, according to the White House’s top economic adviser on Wednesday.  The news lifted Asian, Chinese stocks and the yuan currency.  China on Thursday said that it welcomed an invitation by the United States to hold a new round of trade talks as Washington prepares to further escalate the US-China trade war with tariffs on $200 billion worth of Chinese goods.  According to Chinese Foreign Ministry spokesman Geng Shuang China had received the invitation and welcomed it and the two countries were in discussion about the details.  The invitation has come amid the opposition of tariffs.  More than 60 percent of US companies polled said that the US tariffs were already affecting their business operations, while a similar percentage said Chinese duties on US goods were having an impact on business.  The trump administration is preparing to impose tariffs on $200 billion worth of Chinese goods, hitting a broad array of internet technology products and consumer goods from handbags to bicycles to furniture.  It is unclear if any US-China talks will delay the duties.  So far the US and China have hit $50 billion worth of each other’s goods with tariffs.  US demands that China make sweeping economic policy changes, including ending venture and technology transfer policies, rolling back industrial subsidy programs and better protecting American intellectual property.

Turkey Dollar Bonds

Dollar denominated bonds issued by the Turkish government rose across the curve on Thursday after the central bank raised its benchmark rate by 625 basis points, boosting the lira.  Turkey’s 2038 Eurobond jumped 2.8 cents to 89.74 cents in the dollar, its highest level since end-August according to Tradeweb.  The bank raised the one-week repo rate to 24 percent meaning it has now increased interest rates by 11.25 percentage points since late April, in an attempt to put a floor to the tumbling lira.

Market Roundup

On Tuesday a broad index of world stock markets posted gains for a second straight day as investors piled into energy stocks and US technology stocks.  Investors awaited Donald Trump’s action after a deadline for public comment on additional tariffs on Chinese goods expired.  Shares of Apple Inc climbed 2.5 percent a day ahead of the highly anticipated unveiling of the company’s new iPhone models.  Meanwhile energy stocks received a boost from a rally in oil prices.  Emerging markets remained under pressure and an index of the shares of those countries fell 0.66 percent, touching their lowest level in nearly 16 months.  The currencies of emerging markets are also at their record lows against the US dollar.  China told the World Trade Organisation on Tuesday that it wanted to impose $7 billion a year in sanctions on the United States in retaliation for Washington’s non-compliance with a ruling in a dispute over US dumping duties.  Whilst describing the talks with Canada as going well, Trump told reporters that the United States was taking a tough stance with China.

Alibaba

Jack Ma the co-founder of China’s largest e-commerce firm Alibaba Group Holding Ltd will step down as chairman in one year to concentrate on philanthropy and education passing on the reins to Daniel Zhang.  Ma had flagged his plans to step back, insisting that Alibaba management should be relatively young and his retirement is not expected to affect the running of the company.  He will give up the chairman role in exactly one year on 10 September 2019, and complete his current term on Alibaba’s board of directors following the company’s annual general meeting in 2020, the company said.  He relinquished the role of chief executive in 2013.  The company was founded at a time when the industry was still dominated by state-owned firms and entrepreneurship was seen as risky however it has grown into more than 66,000 full time employees and a market value of some $420 billion.  MA is a former English teacher with no technical background who co-founded Alibaba in 1999 with another 17 and has become one of China’s richest people with a net worth of $36.6 billion according to Forbes.  Alibaba’s sales at its e-commerce business grew 61 percent in the latest reported quarter but its profit margins have been squeezed by big ticket investments, as it battles to keep its dominant position in e-commerce and payments.

Volkswagen

Volkswagen (VW) shareholders are seeking 9.2 billion euros in compensation, arguing that the carmaker should have informed shareholders earlier about its diesel pollution scandal.  Shareholders representing 1,670 claims are seeking compensation for a drop in Volkswagen shares triggered by the scandal which broke in September 2015 which has cost the firm 27.4 billion euros in penalties and fines so far.  Plaintiffs suing the carmaker said that VW failed its duty to inform shareholders about the financial impact of the scandal, which only became popular after the US Environmental Protection Agency issued a “notice of violation” on 18^th September, 2015.  VW shares lost up to 37 percent of their value in the days after authorities exposed illegal levels of pollution emitted from VW diesel cars.  VW has admitted systematic emissions cheating, but denies wrongdoing in matters of regulatory disclosure.

Apple Inc. 

On Wednesday Apple Inc introduced its largest-ever iPhone and a watch that detects heart problems. The company is looking for ways to lessen its reliance on phones which represent more than 60 percent in revenue.    The aim is to get customers to upgrade to more expensive devices in view of stagnant demand for smartphones.  The relatively small changes to its lineup was expected by investors.  The company’s shares ended down 1.2 percent at $221.07. The strategy is working well, and helped the stock to rise more than 30 percent this year and making it the first publicly traded US company to hit a market value of more than $1 trillion.

Oil

Oil eased on Wednesday after nearing its highest level this year after a drop in US crude inventories. The prospect of the reduction in supply from Iran added to concerns over the delicate balance between production and consumption.  According to the American Petroleum Institute (API) US crude stocks fell by 8.6 million barrels in the week to 7 September to 395.9 million while the US Energy Information Administration (EIA) cut its forecast for US crude output growth in 2019.  Meanwhile, Russian energy minister Alexander Novak on Wednesday warned of the impact of US sanctions against Iran.  He said that global oil markets were “fragile” due to geopolitical risks and supply disruptions.  If markets overheat and prices spike, Novak said Russia could increase its output.  On Thursday, oil dropped more than 2 percent with Brent slipping back from four months highs, as investors focused on the risk that emerging market crises and trade disputes could negatively impact demand.  The International Energy Agency warned that although the oil market was tightening at the moment and world oil demand would reach 100 million barrels per day in the next three months, global economic risks were mounting.  The agency further said that, “as we move into 2019, a possible risk to our forecast lies in some key emerging economies, partly due to currency depreciations versus the US dollar, raising the cost of imported energy.”  The Paris based agency also said that, “in addition there is a risk to growth from an escalation of trade disputes.”

Malta:  Gainfully Occupied Population: March-April 2018

In April 2018, registered full-time employment increased by 6.5 percent while part-time employment as a primary job, increased by 2.3 percent when compared to the corresponding month last year. Data provided by JobsPlus show that over a period of one year, the labour supply increased by 6.1 percent reaching 203,633.  This is attributed to a decline in registered unemployment and an increase in full-time gainfully occupied population.

International Trade: July 2018

Preliminary figures show that Malta registered a trade deficit of EUR 218.8 million in July 2018, compared to a trade deficit of EUR 220.6 million in the corresponding month last year.  Both imports and exports increased by EUR 28.6 million and EUR 30.4 million respectively.  The increase in the value of imports was primarily due to machinery and transport equipment while mineral fuels, lubricants and related materials accounted for the main increase in exports.

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