“FED Raises US Interest Rates …”

Fed Raises US Interest Rates

On Wednesday US Federal Reserve raised interest rates and continued with its plans of steadily tightening monetary policy as it forecasts that the US economy will continue to enjoy at least three more years of growth.  In a statement that marked the end of an era of “accommodative” monetary policy, Fed policymakers lifted overnight, the benchmark lending rate by a quarter of a percentage point to a range of 2 percent to 2.25 percent.  The FED still foresees another rate hike in December, three next year and another increase in 2020. The FED removed the word “accommodative” from its statement.  FED Chairman Jerome Powell said the removal of the wording which had been a staple of the central bank’s guidance for financial markets and households for much of the past decade, did not signal a policy outlook change.   During a press conference after the release of the statement he added that “instead it is a sign that policy is proceeding in line with our expectations.”  On the news, the US Treasury yield curve flattened and the US dollar briefly weakened against a basket of currencies.  Initially US stocks extended the gains but later in the trading session fell with banks and financial stocks getting it hard.  The Fed sees the economy growing at a faster-than-expected 3.1 percent and continuing to expand moderately for at least three more years amid sustained low unemployment and stable inflation near the 2 percent target.  In its statement the FED said, “the labour market has continued to strengthen and economic activity has been rising at a strong rate.”  From his end President Donald Trump criticised the FED’s actions as countering his efforts to boost the economy.

UN General Assembly

In his annual address to the United Nations, President Donald Trump repeated his words about “America First” policy and attacked Iran’s “corrupt directorship”, and stated that he will reject globalism and protect American interests. He further vowed that he will impose more sanctions against Tehran.   Much of his speech was directed towards, Iran accusing it of harbouring nuclear ambitions and causing instability in the Middle East through its support for militant groups in Syria, Lebanon and Yemen.  Besides calling out Iran, Trump criticised China for its trade practices but did not mention Russia’s interference in Syria’s war or its suspected meddling in US elections.    From his end Iranian President Hassan Rouhani criticised Trump’s decision to withdraw from the 2015 international nuclear deal with Iran and suggested that the US president’s pulling back from the EU was a character defect.   Trump’s address was met largely by silence from world leaders who are uncomfortable with the go-it-alone views that have strained the US relationships with the rest of the world allies.  French resident Emmanuel Macron defended multilateralism and collective action and said nationalism would lead to failure.  He also added that if countries stopped defending basic principles global wars would return.  Meanwhile, Theresa May on Wednesday called on world leaders in New York to reject nationalism and fight to preserve the multilateral system, challenging US President Donald Trump’s anti-globalism stance.

Climate Change Action

Macron called on government and business leaders to invest more in slowing down climate change as he opened the second annual One Planet summit in New York.   A new investment fund for green businesses and a tool to measure emissions were among the pledges to help governments curb global warming at the summit.  The World Bank which lends to developing countries, announced a platform to pledge $1 billion towards developing battery storage technology.  Energy storage is becoming increasingly important as production of renewable energy rises.  The French and German governments and large philanthropic organisations including the Hewlett Foundation, have pledged initial funds to the Climate Finance Partnership, which organisers said would be set up next year.

China’s Industrial Profit Growth Hits Five Month Low

Profit growth at China’s industrial firms slowed to a five month low in August spreading concerns about faltering domestic demand in the world’s second largest economy.  This is attributed to the escalating trade frictions with the United States.  As business expansion slowed this year in view of China’s tighter funding due to China’s campaign to curb corporate debt and reduce risky borrowing, the demand for raw materials and industrial products were hit.  Furthermore, a softer property market has also affected construction related demand.  On Thursday data from the National Bureau of Statistics showed that industrial profits rose 9.2 percent in August to GBP 57.84 billion.  The profit slowdown points to persistently weakening demand under the ongoing deleverage campaign despite policymakers shifting their focus to growth-boosting strategies.  The measures include accelerating approvals for infrastructure projects and financing support for the private sector.  Taxes and fees are being cut and banks are being told to keep credit lines open to firms hit by the China-US trade dispute.

Italy’s Yields

Italy’s government on Thursday targeted the budget deficit at 2.4 percent of gross domestic product for the next three years, defying Brussels and marking a victory over economy minister Giovanni Tria.   The budget would fund a major expansion of welfare spending, tax cuts and a boost to public infrastructure investment.  After a meeting with economy Minister Giovanni Tria, 5-Star leader Luigi Di Maio and League chief Matteo Salvini said, “There is an accord within the whole government for 2.4 percent, we are satisfied, this is a budget for change.”  Tria initially wanted a deficit set as low as 1.6 percent next year, hoping to respect the demands of the European Union that Italy progressively cut the fiscal gap to manage its high debt.  The 2.4 percent deficit target remains in the 3 percent ceiling described by EU rules but Italy had promised Brussels it would cut the deficit to curb its debt.  The concern for investors is that this budget not only puts Italy at odds with Brussels but that the anti-establishment government is not committed to tackling the country’s immense debt pile.  Furthermore, Italy’s rating is of particular concern, as the country is only two notches above the dividing line between investment grade and junk. The country has the heaviest debt burden among the big EU economies at about 130 percent of gross domestic product.  It is under pressure from the EU to rein in spending, amid concerns that it could sow the seeds of a debt crisis in the heart of the Eurozone.  The euro dropped to an 11-day low of $1.1617 percent, down 0.2 percent on the day while Italian bank shares fell more than 4 percent.  Other high-grade euro zone government bonds dropped as investors retreated to the safety of higher rated government debt.  Germany’s 10 year government bond yield, which is the benchmark for the region, was lower 4bps at 0.49 percent.

BREXIT

Britain’s opposition labour party is set to vote against any deal that Prime Minister May clinches with the Europea Union and is open to a second referendum with the option of staying in the bloc, according to Brexit spokesman Keir Starmer.  Only six months are left for Britain to leave the EU, and May has yet to reach a deal on the terms of the divorce.  May said she will press on her proposals and branded the Labour’s intention to vote against any agreement that falls short of its demands as “not in the national interest”.  Labour listed six tests it would apply to any Brexit deal, including a strong future relationship with the EU that would deliver the same benefits Britain has as a member of the EU single market and customs union.  According to Starmer, May was on course to fail these tests.  He called for an election to allow a Labour government to steer Britain’s departure from the EU.

Germany’s Growth

Germany’s BDI industry association on Tuesday lowered its 2018 growth forecast and warned of a potential downturn, amid weaker demand for German exports, due to US trade policy and Brexit.  The German economy is now expected to grow 2 percent this year, down from a previous estimate of 2.25 percent according to BDI President Dieter Kempf.  Exports will rise by 3.5 percent in real terms, below an initial forecast of 5 percent.  While Europe’s biggest economy has been growing for nine years and could continue expanding, Kempf said it was urgent that Germans now take steps to prepare for the possibility of a downturn.  The BDI called for lower corporate taxes, higher public investment in education and digital infrastructure as well as a completion of the European Union’s single market, by harmonizing rules in areas such as services, energy and digital business.  Kempf said that “the trade policy of US President Trump, but also the approaching Brexit are dampening investment worldwide and with it German export business.”

Swedish PM Lofven

Swedish Prime Minister Stefan Lofven lost a no-confidence vote in parliament on Tuesday, with the anti-immigration Sweden Democrats threatening to block any new government unless they are given a say in policy.  Sweden which is seen as a bastion of liberal values and political stability, now faces the same choice with its centre-left and centre-right blocs balanced evenly after the 9^th September election with the Sweden Democrats holding the balance of power.  On 9^th September election voters delivered a hung parliament as Lofven’s centre-left bloc won 144 seats, one more than the centre-right opposition Alliance.  The Sweden Democrats party got 62 seats and backed the Alliance in Tuesday’s vote, which was an obligatory test of the prime minister’s parliamentary support after an election.  A new government could take weeks or months, similar to what happened in Germany and Italy.

Commodities

On Wall Street, energy shares rose along with banks, climbing in anticipation of a US Federal Reserve rate hike later in the week.   Concerns over trade tensions between the US and China were offset by oil which grabbed attention and added to gains after surging more than three percent on Monday.  Brent crude futures shot to four-year highs of almost $82 a barrel, amid imminent US sanctions on Iranian crude exports and the apparent reluctance of OPEC and Russia to raise output to offset the potential hit to global supply.   Meanwhile, oil prices eased after US data showed a surprise build in domestic crude inventories, however a drop in Iranian exports kept Brent Futures above $80 a barrel.  Global benchmark Brent fell 0.21 percent to $81.72 a barrel while US West Texas Intermediate crude futures fell 0.33 percent to $72.04 a barrel.  US crude inventories rose 1.9 million barrels in the week to 21^st September according to US Energy Information Administration (EIA) data.  On Thursday oil edged higher, driven by the prospect of a shortfall in global supply once US sanctions against major crude exporter Iran comes into force in five weeks.  US gasoline prices are sitting at their four-year seasonal highs, ahead of the US November mid-term elections, even though President Donald Trump has called repeatedly for OPEC to push prices lower.    Gold prices fell after the FED raised US interest rates as expected and forecast three more years of economic growth.  Spot gold lost 0.5 percent at $1,194.64 per ounce.

Bank of Japan (BOJ) Policymakers:  July Minutes

The minutes of the policy meeting held in July, released on Tuesday show that a few Bank of Japan board members said that the central bank must consider more seriously the potential dangers of ultra-easy policy, such as the negative impact on the country’s banking system.  Furthermore, some in the nine-member board, showed concern whether the BOJ could trigger a spike in long-term interest rates by allowing bond yields to move more flexibly around its zero percent target.  The central bank faces challenges in view of the stubborn weak inflation that forces it to maintain a massive stimulus programme despite the rising costs, such as the impact on bank profits arising from prolonged ultra-low interest rates.   The minutes also show that another member said, the BOJ should look more carefully at how its monetary policy was affecting Japan’s banking system.  At the July 30-31 meeting, the BOJ took steps to make its policy framework more sustainable, such as allowing bond yields to move more flexibly around its target, as years of heavy asset buying by the central bank dries up market liquidity.  Some members cautioned that by the BOJ mentioning in its statement that bond yields could move up or down, depending on market conditions, could trigger “unnecessary” rises in yields  or risk being misinterpreted by markets, as paying the way for future rate hikes.   In 2013, the BOJ had launched a radical asset-buying programme, and helped to reflate the economy by boosting exports via a weak yen and improving business sentiment.  Inflation has however, failed to rise.

Nikkei Hits 27-Year High

Japan’s Nikkei stock index rose as high as 24,286.10 points, reaching its highest levels since November 1991 on renewed optimism about the global economy and hopes of a boost to exporter’s earnings from a weaker yen.   Japan’s Nikkei hit a 27 year high on Friday, on a strong dollar, after the Federal Reserve chairman said he did not expect a near-term recession and strong gains on Wall Street, overnight.     In Asia shares also rose with the MSCI broadest index of Asia-Pacific shares outside Japan, adding 0.1 percent.  Shares in China were higher ahead of a week-long national holiday.

Instagram Co-founders Resign

On Monday Instagram said, co-founders Kevin Systrom and Mike Krieger have resigned as chief executive officer and chief technical officer of the phot-sharing app owned by Facebook Inc.  These departures came after the exit of Jan Koum, co-founder of Facebook-owned messaging app WhatsApp, leaving the social network without the developers behind two of its biggest services.  This also came after Facebook’s platform is under fire as to how it safeguards customer data and the approach taken to defend against political efforts to spread false information.

Malta:  Industrial Producer Price Indices – August 2018

During August 2018, the industrial producer price index registered an increase of 3.49 percent when compared to the same month last year.  This was due to a rise of 8.7 per cent in the intermediate goods sector and 0.12 per cent in the capital goods sector.  Decreases were registered in the consumer goods sector of 0.1 percent.  No price changes occurred in the energy sector.

Malta:  Business Innovation 2014-2016

Technological innovation expenditure for 2016 was estimated at EUR 192.8.  Between 2014 and 2016, 511 enterprises employing at least 10 persons, or 27.1 percent of the total, undertook innovation activity.  Results show that 85 enterprises were engaged solely in technological innovation, 148 enterprises were engaged in non-technological innovation and the remaining 278 were involved in both technological and non-technological innovation.

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