“FED Raises Rates …”

FED Raises Rates

On Tuesday the US Federal Reserve kicked off a two-day monetary policy meeting.   The FED stuck to its plan of withdrawing support to the economy and raised interest rates for the fourth time this year pushing the central bank’s key overnight lending rate to a range of 2.25 percent to 2.5 percent.  In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $ 50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they could break the economy’s momentum.  In the statement issued after the FED’s latest policy meeting and in Powell’s comments: The US economy continues to perform well and no longer needs the FED’s support either through lower-than-normal interest rates or by maintaining a massive balance sheet.  Powell said, “Policy does not need to be accommodative.” In its statement the FED also said that the risks to the economy were “roughly balanced” but that it would “continue to monitor global economic and financial developments and asses their implications for the economic outlook.”  The FED also made an expected technical adjustment, raising the rate it pays on the banks’ excess reserves by just 20 basis points to give it better control over the policy rate.  The purpose is to keep better control over the policy rate and keep it within the targeted range.  The S&P 500 Index fell to a 15 month low, extending the volatility that has dragged the market since September.

United States: Short Government Funding Bill

On Thursday, the US Congress prevented a partial federal shutdown with a temporary government funding bill. Senate approved a bill to provide money to keep a series of programs operating through 8^th February.  Senate refused to give President Donald Trump any of the $5 billion he demanded to build a wall along the US-Mexico border.  On 3^rd January, Democrats will take the reins in the House of Representatives from Republicans, making it less likely that Trump will get the money for the wall.

Bank Of England Keep Rates On Hold

On Thursday the Bank of England kept interest rates on hold and warned about the risks of a Brexit with a no-deal.  The BOE added that the Brexit uncertainty had “intensified considerable” over the last month and that falling oil prices were likely to push inflation below its 2 percent target soon.  In an unanimous vote, rate-setters voted to keep rates at 0.75 percent.  Earlier on, sterling rose to a high of $1.2707, from strong retail sales growth and a dollar that weakened across the board amid growing concerns over the rates.  The decision from the Bank of England kept the sterling 0.6 percent firmer at $1.2684.

Plans For No Brexit Deal

On Tuesday the British government said it would implement plans for a no-deal Brexit in full and start telling businesses and citizens to prepare for the possibility of the UK leaving the European bloc without an agreement.  The plans include setting aside space on ferries to ensure a regular flow of medical supplies and armed forces ready to support the government with its contingency plans.  Meanwhile, Theresa May said a delayed vote on her deal will take place in mid-January.  On the other hand, lawmakers are accusing May of trying to force parliament to back her deal.  In the event of a no deal there would be no transition period and will be an abrupt exit.  The government has made available more than 4.2 billion pounds for Brexit planning since the referendum which took place in 2016.  On Tuesday, finance minister Philip Hammond allocated more than 2 billion pounds from that fund to departments, by allocating GBP 480 million to interior minister to beef up border controls, GBP 375 million to the tax authority to implement more staff to handle increases in customs activity and GBP 410 million to the environment, fisheries and food department.

Italy’s Deal Over The Budget With EU Commission

On Wednesday the European Commission reached a deal with Italy over its 2019 budget, avoiding disciplinary steps against Rome.  The originally presented budget envisaged a budget deficit equal to 2.4 percent of gross domestic product in 2019, up from 1.8 percent this year. The Commission declared it in clear breach of EU fiscal rules.   Under the compromise announced by the Commission Vice President Valdis Dombrovskis in Brussels, Italy cut its deficit for next year to 2.04 percent of GDP.  It also lowered its economic growth forecast for 2019 to 1 percent from 1.5 percent.

China

The central bank of China on Wednesday rolled out a policy tool to encourage lending to small and private firms.  Meanwhile, on Wednesday the US Agriculture Department said that private exporters sold 1.199 million tonnes of US soybeans for shipment to China.  The sales came after US President Donald Trump and China’s president Xi Jinping agreed to a 90 day trade war truce earlier this month in a G20 meeting.    The buying by China is the latest evidence that China is making good on pledges to buy US agricultural goods as part of the deal.

Japan’s Central Bank

Japan’s Central Bank on Thursday kept its ultra-loose monetary policy and reaffirmed its view that the economy is on solid footing.  Investors are focusing on the BOJ Governor post-meeting briefing for any indications as to how the rising global uncertainties and signs of bond market strain could affect future policy.  The BOJ kept its short-term rate target at minus 0.1 percent and the 10 year yield target around zero percent under a Yield Curve Control (YCC) policy.

Rules agreed for 2015 Paris Climate Agreement

On Saturday nearly 200 nations agreed on a rulebook for implementing a landmark 2015 global deal to tackle climate change.  After two weeks of talks and two years of work, nations reached a consensus on a more detailed framework for the 2015 Paris Agreement.  Its aim is to limit a rise in average world temperatures to “well below” two degrees Celsius above pre-industrial times.

Oil

On Tuesday oil tumbled more than 5 percent in heavy trading due to fears of oversupply and deteriorating demand.  US crude and global benchmark Brent both extended declines whereby US crude oil fell 7.3 percent to settle at $46.24 the weakest since August 2017, whilst the Global Benchmark Brent lost 5.62 percent to settle at $56.26 a barrel.  This month OPEC and other oil producers agreed this month to curb production by 1.2 million bpd in an attempt to drain tanks and boost prices.  According to the US Energy Information Administration, oil production from seven major US shale basins is expected by year-end to surpass 8 million bpd for the first time.  On Wednesday the EIA (Energy Information Administration) said that US crude stocks fell last week, while gasoline stocks increased and distillate inventories fell.  Oil prices on Thursday fell about 5 percent, hitting their lowest level in more than a year on worries about oversupply and the outlook for the demand for energy, as higher interest rates in the US knocked stock markets.  Brent hit a season low of $54.28 a barrel, its lowest price since mid-September 2017, while WTI sank to $45.67 its lowest price since late August 2017.

Markets Wrap

Equity markets fell sharply over the last two months with several stock sectors reaching bear-market territory. On Monday European shares tumbled as a profit warning from online fashion retailer ASOS sent retail stocks down.  Investors are concerned that consumers are failing to deliver the pre-Christmas spending boost to markets.  Other retailers such as Sports Direct and Dixons Carphone experience negative profit outlooks amid poor performance in the pre-Christmas trading period.  Meanwhile, Wall Street slipped 1 percent led by healthcare stocks after a federal judge on Friday ruled that the Affordable Care Act, also known as Obamacare, was unconstitutional based on its mandate requiring people to buy health insurance.   On Wednesday the benchmark US treasury yields fell to more than six-month lows, while US stocks climbed, boosted by technology stocks and financials, also gained as investors awaited the decision of the FED.  On Thursday European shares were dragged down sharply with several benchmark indexes hitting two-year lows on worries that tighter monetary policies could further impact slow economic growth.  The selloff in Europe was across all sectors, however, cyclical sectors such as miners and banks took the lead in the downfall by 2.6 and 1.4 percent respectively.  Concerns over a slowing economy, the trade war between the US and China and political instability have weighed on the earnings growth of European companies.  Amongst the indices, the STOXX 600 is set for its worst yearly performance since 2008 by falling more than 13 percent year-to-date.  The DAX which is heavily exposed to China, was down 17 percent year-to-date, while the FTSE was down 13 percent.  Italian stocks were also down 14 percent over concerns amid the country’s public finances.     On Thursday US stock markets continued with their decline, dragging oil prices lower.

Malta:  Retail Price Index – November 2018

In November 2018, the annual rate of inflation as measured by the Retail Price Index (RPI) was 1.59 percent down from 1.62 percent in October 2018.  The largest upward movement on annual inflation was recorded in the Food Index.  The Retail Price Index measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked with the cost-of-living adjustment increases and periodic rent payment adjustment.

Malta:  Industrial Producer Price Indices: November 2018

The industrial producer price index increased by 4 percent when compared to November 2017 amid a rise of 8.59 percent intermediate goods, 1.8 percent in the consumer goods, and 0.06 percent in the capital goods sectors. There were no prices changes registered within the energy sector.  Meanwhile during the month of November 2018, the producer price index for the total industry registered an increase of 0.54 percent over the previous month.  This was due to a price rise of 1.27 per cent within the intermediate goods and 0.07 percent within consumer goods.  There were no changes within the energy and capital goods sectors.

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