“First Green Issue From A Triple-A Rated Sovereign …”

First Green Issue From A Triple-A Rated Sovereign

The focus this week was on the Netherlands and its triple-A rated sovereign green bond issued on Tuesday.   Investors placed 21.2 billion euros of orders for the environmentally friendly paper.  The Netherlands follows other countries within the EU such as Poland, France, Belgium and Ireland in selling green bonds, however, this was the first triple-A rated sovereign borrower.  The Dutch Debt agency said it gave preference to investors that could prove their ecological credentials.  Thirty-two investors had registered as green before the 20-year bond’s auction.  The Netherlands raised almost 6 billion euros.  Although green bonds comprise a small fraction of the overall bond market, interest has soared as banks, sovereigns and companies are looking into tapping in this increased investors’ appetite.  Meanwhile, Hong Kong on Tuesday sought to raise up to $1 billion in five-year bonds as the former British colony acts to establish itself as a centre for green finance.

European Business Growth

Recovery in eurozone business activity was weaker than expected this month as a deep contraction in the bloc’s manufacturing industry is increasingly holding back services firms according to a survey.  The IHI Markit’s Flash Composite Purchasing Managers’ Index which is considered a good guide to economic health, only increased up 51.6 this month from a final April reading of 51.5.  Meanwhile, earlier figures from Germany showed that activity contracted for a fifth consecutive month in May, reflecting the unresolved trade disputes are having on Europe’s largest economy.  German business morale deteriorated more than expected this month mainly due to a plunge in services sector confidence, showed an Ifo Institute survey on Thursday.  The survey also suggested the economy is losing steam after solid growth at the start of 2019.  In France, the bloc’s second-largest economy and the only other eurozone member to report a preliminary PMI, showed that activity reached a six-month high but again trade disputes looked set to ensure growth would remain modest.  The flash manufacturing PMI spent its fourth month below the 50-mark separating growth from contraction, falling to 47.7 from 47.9.

Theresa May To Step Down On 7th June

Theresa May set out on Tuesday a “new deal” for Britain’s departure from the European Union.  This is her fourth attempt to break the impasse in parliament over Brexit that has plunged her government into crisis.  May is trying to get the backup of a deeply divided parliament for a divorce deal.  At a meeting with her top team of ministers, May outlined her plan to try to get the bill through parliament to secure Britain’s exit from the EU with a deal.  May wants to get her withdrawal deal, agreed with the EU in November, through parliament, so that as promised she can leave office having at least finalised the first part of Britain’s departure and prevent a “no deal” Brexit, an abrupt departure that many businesses fear will create an economic shock.  Meanwhile, Prominent Brexit supporter Andrea Leadsom resigned from Theresa May’s government on Wednesday, putting more pressure on May.  May will still try to push her new Brexit plan, which includes a vote on whether to hold a second Brexit referendum once her legislation passes the first stage as well as closer trading arrangements with the EU.  This however has been met with a swift backlash as several lawmakers who have supported her in previous Brexit votes saying they could not back the new plan, in view of the U-turn regarding a possible second referendum.  Labour’s call reflected that of many of May’s Conservatives who say that a fourth attempt to get her deal approved by parliament should be shelved and she should leave office to offer a new leader a chance to reset the dial.   The Brexit delay means that voters across the United Kingdom are going to the polls on Thursday in a European parliamentary election.  Meanwhile, Theresa May said on Friday she would step down on 7th June, succumbing to calls in her governing Conservative Party to make way for a new leader.

European Parliament Elections

European Parliament Elections kicked off on Thursday. Investors are weighing the possibility that Eurosceptic groups could grap a third of seats, a level at which analysts say they could stir more trouble for governments and the economy.  Meanwhile, the Netherland’s Labour party won most Dutch votes for the European Parliament on Thursday, according to an exit poll.  The labour party of European Commissioner Frans Timmermans, on Thursday won a surprise victory, easily beating a Eurosceptic challenger who had been topping the polls.

OECD Warns About the Global Economy

In its latest economic outlook, the OECD noted that global growth slowed sharply in the late 2018 and is now stabilising at a moderate level.  Escalating trade conflicts and dangerous financial vulnerabilities threaten a new level of activity by undermining investment and confidence worldwide.  The global economy is expected to achieve moderate but fragile growth over the coming two years.  Trade tensions, high policy uncertainty, risks in financial markets and as a slowdown in China are all factors that could further impact growth worldwide.  The OECD projects that the global economy will grow by 3.2 percent in 2019 and 3.4 percent in 2020.  The Outlook includes downward revisions for many major economies and warns that current growth rates are insufficient to bring about major improvements in employment or living standards.  The Outlook identifies trade tensions as the principal factor weighing on the world economy.   It further notes that world trade is the key artery of the global economy and is projected to grow by just over 2 percent this year which is the lowest rate in a decade.  It highlights that the trade disputes are hurting manufacturing, disrupting global value chains and generating significant uncertainty that is weighing on investment decisions.  The outlook calls on governments to act now to ensure a stronger economic future, calling for a return to international cooperation and multilateral dialogue to restore predictability in policy and relaunch trade.

Turkish Lira

A currency crisis last year wiped nearly 30 percent off the value of the lira against the dollar and has fallen further in 2019.  The Central Bank on Tuesday lowered the swap market lira interest rate and held a repo auction for the first time in nearly two weeks.  This reverses a policy tightening step it had taken to support the currency.  The lira weakened as far as 6.0860 against the US currency after the central bank’s action.

India: Modi’s Election Win

Prime Minister Narendra Modi promised to unite the country on Thursday after a huge election win, with his party on course to increase its majority on a mandate to pursue business-friendly policies and a hard line on national security.  Modi’s victory boosted financial markets as investors expect his government will pursue economic reforms.  He will be under pressure to create employment for the tens of millions of young people coming into the job market and to boost depressed farm incomes.

Trade Talks

Pressure in financial markets continued this week as concerns that the United States and China are digging in for a long costly trade war. Beijing accused Washington of harbouring “extravagant expectations” for a deal to end their dispute.   Negotiations between the US and China have soured since early May, when Chinese officials sought major changes to the text of a proposed deal that the Trump administration says had been agreed.  A subsequent round of talks ended with no movement as US President Donald Trump increased tariffs to 25 percent from 10 percent on $200 billion worth of Chinese imports and threatened to impose duties on all remaining Chinese goods sold in the US.  Whilst China imposed a retaliatory tariff increase, the Trump administration followed up  on Thursday by adding telecom equipment giant Huawei to a trade blacklist that restricts its ability to purchase American components and software and do business with other US companies.  There are no new talks scheduled and Beijing suggested that negotiations were unlikely to resume soon and raised questions about a possible meeting between Trump and Chinese President Xi Jinping next month at a G20 summit in Japan.  Meanwhile, the US restrictions on Huawei began to hit hard on Monday, as Alphabet Inc’s Google suspended the business requiring the transfer of hardware, software and technical services to premier Chinese technology firm.  Shares in European chipmakers Infineon Technologies, AMS and ST Microelectronics fell sharply on Monday on worries that Huawei suppliers may suspend shipments to the Chinese firm.  On Monday the US Commerce department granted Huawei a licence to buy US goods until 19th August to main existing telecom networks and provide software updated to Huawei smartphones.  President Donald Trump said that US complaints against Huawei Technologies Co Ltd might be resolved within the framework of a US-China trade deal, while at the same time he called the Chinese telecommunications giant “very dangerous”.   According to US Treasury Secretary Steven Mnuchin on Wednesday, the United States is at least a month away from enacting its proposed tariffs on $300 billion in Chinese imports as it studies the impact on American consumers.  Mnuchin further said that the Trump administration is open to holding new talks with China if the two sides can proceed on the basis of previous negotiations.

Farm Aid Announced By The Trump Administration

The Trump administration on Thursday unveiled a $16 million farm aid package to offset the losses amid a then month trade war with China.  The payment rates to farmers would be based on where they farm rather than what crops they grow.  Farmers which were the driving force behind the electoral win of President Donald Trump in the 2016 electoral win have been among the hardest hit by the trade war.  The Trade dispute has left US farmers sitting on record volumes of soybeans as China stopped purchases.  USDA officials said on Thursday that they will roll out $14.5 billion in direct payments in three separate tranches with the first one planned for late July.

US Manufacturing Activity Growth

Data from IHS Markit showed that US manufacturing sputtered in May, measuring its weakest pace of activity in nearly a decade and new orders fell for the first time since August 2009 as the US-China trade war intensified.   In its “flash” Purchasing Managers Index for May, Markit said its US manufacturing PMI declined to 50.6 from a final reading of 52.6 in April.  This marks the lowest level since September 2009.  A reading above 50 indicates growth.   The weakness in manufacturing mirrored the services sector where the Markit’s flash Services Business Activity Index dropped to 50.9 this month from 53 in April, the lowest since February 2016.  The combined two readings brought the Markit’s overall US Composite Output Index to 50.9, the lowest since March 2016 from 53 last month.

Fed Minutes Wednesday

Minutes from the FED’s meeting held on 1st May were released on Wednesday and showed that the Federal Reserve may consider tweaking how much it pays mortgage agencies, money market funds and other non-banks in certain Treasury-backed transactions.  The minutes further said that the Fed’s current patient approach to setting monetary policy could remain in place “for some time”.  The Fed uses reverse repo program (reverse repurchase agreement) to control interest rates.   Reverse repos, and the interest the FED pays banks on reserves they keep at the FED and the term deposit facility, helped the FED to manage short term interest rates after it increased them from low levels amid the 2008 financial crisis.  By focusing on controlling interest rates, the FED hopes to influence the broader economy to maximize employment and keep inflation near its target.  After the May meeting, the FED tweaked the interest on excess reserves (IOER) for a third time since June 2018 without changing the policy rate in order to keep the borrowing rates down.

Markets Wrap

Equity markets worldwide slid on Monday amid the latest flare-up from the US-China trade war.  On Wall Street the Dow Jones fell over 100 points at the start of the session while European shares have fallen heavily.  Emerging Markets on Tuesday gave up early gains as the MSCI’s index of emerging markets gave up gains of up to 0.6 percent to trade flat, whilst mainland China shares- index-heavyweights closed more than 1 percent after Washington temporarily eased trade restrictions imposed last week on China’s Huawei.  Indian shares turned to losses after all-time highs earlier in the session on election optimism.  Tata Motors was the worst performer after providing a disappointing outlook, taking the broader indexes lower after three strong sessions.  US stocks rebounded on Tuesday as the trade-war that has dominated the markets this month showed few signs of abating.  Treasuries slipped while the dollar gained.  The S&P 500 Index climbed after the US decided to grant limited relief for consumers and carriers to do business with Huawei Technologies.   Semiconductors bounced back from the previous session of 4 percent sell-off logging their first gain in four sessions.  In Europe, technology shares powered the Stoxx 600 Index higher, and Chinese equities had the strongest gains in the Asian session, while the Japanese peers ended lower.   Reports that the US could impose restrictions on Chinese technology company Hikvision, renewed market jitters about trade on Wednesday, reversing a relief rally that followed Washington’s move to temporary ease curbs against Huawei Technology Co Ltd.  Demand for high-rated bonds remained firm during the week amid more disappointing data from Europe and the United States that could be more entrenched.  Ten-year bond yields in the United States, Germany, Japan and Britain were all set for a third straight week of falls.  US Treasury yields were also higher on Friday after falling to their lowest levels since 2017 on Thursday.  The yield curve as measured by the gap between the three-month and 10-year Treasury yields remained inverted, a sign that investors are bearish on the economic outlook.    Meanwhile, stock markets plunged on Thursday and European indices dropped,  as data showed economic growth for may remained subdued.  On Wall street stocks were also at session low.

Currency Roundup

The pound fluctuated on Monday after the UK Prime Minister said she prepared to offer parliament a vote on holding a second referendum.  On her remarks, the pound spiked higher before giving up those gains, as some key lawmakers responded for her remarks with scepticism.   Tuesday further saw the pound tumbling as the Brexit turmoil lingered.   The yen broadly advanced on Thursday amid the persistent US-China trade fears and concerns over Brexit increased risk aversion, lifting the Japanese yen which is considered as a safe-haven asset.  Investor sentiment was also affected by the deepening Brexit crisis and the pressure on British Theresa May to resign after her new Brexit gambit backfired.  The mood in the market is getting gloomier amid Brexit and the prevailing worries over the US-China trade war.  The pound dipped 0.07 percent to $1.2652 after slipping to $1.2625 overnight, its lowest since 4th January.  The dollar index against a basket of six major currencies was little changed at 98.105, whilst earlier in the week it reached a one-month high of 98.134 stalling as US yields declined amid the risk aversion.  The Swiss franc, a safe haven along the yen, was a bit higher at 1.008 francs per dollar after advancing 0.15 percent on Wednesday.  On Friday the dollar was on track to post a small weekly loss after coming off two-year highs on lower US yields as investors feared the Sino-US trade dispute will hurt the US economy more than expected.  Also, the greenback was down on rising expectations that the Federal Reserve will cut US interest rates later this year to boost the world’s biggest economy.


Gold slipped to more than two-week low on Tuesday as the dollar strengthened and risk appetite improved.  Spot gold was down 0.4 percent at $1,272.42 per ounce having touched its lowest level since 3rd May at $1,270.09.  US gold futures also fell 0.4 percent, to $1,272 an ounce.


On Monday US President Donald Trump threatened Iran with “great force” if it attacked US interests in the Middle East.  This came about after a rocket attack in Iraq’s capital Baghdad.  Meanwhile oil prices rose on Monday to multi-week highs before easing later in the session as OPEC indicated it was likely to maintain production cuts that have helped boost prices this year, while escalating Middle East tensions provided further support.  OPEC is due to meet in Vienna on 25th to 26th June for their next oil policy meeting.    Oil prices rose on Tuesday on expectations that OPEC producers will continue to curb supply this year and as US-Iran tensions escalated.  Gains were capped by concerns that a prolonged trade war between Washington and Beijing could lead to a global economic slowdown. Meanwhile, Iran said on Tuesday that it would resist US pressure, declining further talks under current circumstances.    Brent crude futures, the international benchmark for oil prices were at $72.31 per barrel up 34 cents or 0.5 percent form their last close.  US West Texas Intermediate (WTI) crude futures were up 42 cents or 0.7 percent at $63.52 per barrel.  According to Iraq’s oil minister, growing tension in the Middle East poses a challenge to the stability of global crude oil markets and said OPEC must pave the way for a “new agreement” to help stability and support prices.  Adding to the market tightness was the closure of a major pipeline in Nigeria and supply disruptions from Russia.  Oil prices dropped on Thursday extending the falls from previous sessions as trade tensions dampened the demand outlook.

Malta:  Retail Price Index – April 2019

In April 2019, the annual rate of inflation as measured by the Retail Price Index (RPI) was 1.91 percent, up from 1.89 per cent in March 2019.  The largest upward impact on annual inflation was recorded in the Food Index, while the largest downward impact was recorded in the Clothing and Footwear Index.  The Retail Price Index measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked to the cost-of-living adjustment (COLA) increases and periodic rent payment adjustments.

Malta:  Registered Unemployment – April 2019

In April, the number of persons registering for work stood at 1,748 decreasing by 5.4 percent when compared to the corresponding month in 2018.  Registered unemployed dropped among all age groups, with the exception of those aged less than 25 years.  Th largest share of men and women on the unemployment register sought occupations as clerical support workers with 18.6 per cent and 39 percent respectively.

Antonella Mercieca

Client Relationship Manager


Reuters, Bloomberg, https://nso.gov.mt, www.oecd.org/


May 24th, 2019

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