“G20 Summit …”

G20 Summit

The world’s biggest economies, the Group of 20 Nations (G20) are meeting on 30th November and 1st December in Argentina with the trade war between Washington and Beijing on top of the agenda. Russia, the United States and Saudi Arabia are all present and oil policy is expected to be discussed.  The G20 summit is being considered as a key event for markets given that the two presidents of the US and China are scheduled to discuss contentious trade matters after months of tensions between the world’s two biggest economies.  Amongst other issues to be discussed are migration and climate.  This gathering is expected to be one of the consequential summits since the group’s leaders first met in 2008 to plan how to contain the economic crisis.

Bitcoin

Digital coins worsened over the weekend with the Bitcoin falling to $3,475 before recovering some of its losses to trade at $3,944.  On Wednesday Bitcoin bounced more than 10 percent, rising above $4,100 and heading to its biggest daily increase since mid-April.  The world’s biggest cryptocurrency hit a daily high of $4,157 its strongest in days on Bitstamp Exchange.  Other cryptocurrencies also rose. Meanwhile on Friday, Bitcoin fell as much as 7 percent heading towards the low level reached   in September of $3,474.73.  Other cryptocurrencies including Ethereum ether and Ripple XRP also weakened.  Analysts are citing increase in US regulatory scrutiny and a delay to January 2019 of the widely-anticipated launch of bitcoin futures by Bakkt, Intercontinental Exchange’s crypto platform as the motivation behind the downfall.

Brexit:  Agreement Reached With EU Leaders

A last-minute deal to meet Spain’s demand for a say on the future of Gibraltar after Britain leaves the EU meant a summit went ahead last Sunday.  On Sunday the 27 EU leaders formally endorsed a treaty setting terms for British withdrawal in March and an outline of a future EU-UK trade pact.  In a press conference Theresa May said it was the “only possible deal” offering control of UK borders and budgets while maintaining close cooperation with EU regulations that was good for business and the security of the broader region.  Meanwhile, when asked if there was any chance Brussels would reopen the pact if an alliance of pro-and anti-Brexit forces votes down in the House of Commons, Juncker stressed “this is the best possible deal”.  Summit chair Donald Tusk said he did not want to consider hypotheticals.

Brexit:  BOE And Government’s Comments

On Wednesday the Bank of England said that Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the EU in a worst-case Brexit scenario in four months’ time.  After the government issued its own warning about a no-deal Brexit, the BOE said that the economy could shrink by as much as 8 percent in about a year.  The two reports can add pressure on lawmakers to drop their opposition to the Brexit agreement that Prime Minister Theresa May reached with other EU leaders on Sunday.   The British government also intensified its warnings about a no-deal Brexit on Wednesday stating it would be a big blow to the economy, while Theresa May’s plan which is opposed by many lawmakers would minimise the hit.  The government further said that in a scenario that resembles the agreement struck with other European Union Leaders, the economy would be 2.1 percent smaller in 15 years’ time than if the country remained in the bloc.  In a report the government said the economy would be 7.7 percent smaller if there is no deal.  Just nearly four months away before Brexit, May is struggling to overcome the resistance from her own Party and other political parties to the agreement reached with the EU leaders on Sunday.

Trump Re-attacks Federal Reserve Chairman

President Donald Trump attacked again Federal Reserve Chairman Jerome Powell by stating to Washington post that “he is not even a little bit happy” with his choice to head the central bank.  In the interview Trump said that the central bank’s policies are responsible for the recent stock market declines and for General Motor’s announcement this week that it would close five factories in North America and make 14,000 redundant next year, as reported by the Post.  Trump has previously criticised the FED on steep stock-market losses with its campaign of gradual rate increases and raise objections on whether to fire Powell.  It was customary for two decades for the White House to avoid commenting on monetary policy out of respect for the Fed independence.  The aim of central bankers is to keep inflation near its 2 percent target amid a strong labour market that has driven unemployment to the lowest level since 1969 and to keep the economy running smoothly. According to quarterly projections raised in September, a rate increase is expected by year end and three more in 2019.  Next month these projections will be updated.

US Federal Reserve Chair Jerome Powell’s Speech

US Federal Reserve Chair Jerome Powell on Wednesday said that the central bank’s policy rate is now “just below estimates of a level that neither brakes nor boosts a healthy US economy.  Many investors took the comment as signalling that the Fed’s three-year tightening cycle is drawing to a close.    Powell’s comments triggered a rally in US stocks and pushed the US treasury 10 year bond yield to as low as 3.01 percent in early hours of trading on Thursday which is its lowest level since mid-September.   The spread between the 2 year yield and the 10 year yield fell to 23 basis points, close to an 11 year low of 19 bps

US Economy

As previously reported the US economy slowed in the third quarter however the pace was strong enough to hit the 3 percent target of the Trump’s administration.  The Commerce Department said on Wednesday that Gross domestic product increased at a 3.5 percent annualised rate, in its second estimate of third-quarter GDP growth.  In the second quarter the economy grew at 4.2 percent.  Growth is being driven by the $1.5 trillion tax cut package by the White House, which has given consumer spending a boost and was of support to business investment.  The fiscal stimulus adopted by the Trump administration, was to boost annual growth to 3 percent on a sustainable basis.  The government also reported that after-tax corporate profits increased at a 3.3 per cent last quarter after rising at a 2.1 percent in the second quarter.  The third quarter slowdown mostly reflected the impact of Beijing’s retaliatory tariffs on US exports.   Imports increased faster in the third quarter than previously estimated while the drop in exports was much cheaper leading to an even wider trade gap.  The rebound in imports was partially driven by strong domestic demand.  Meanwhile, businesses stockpiled before US import duties mostly on Chinese goods came into effect late in the third quarter. Growth in consumer spending which accounts to more than two-thirds of US economic activity increased at a 3.6 percent rate in the third quarter, down from the 4 percent rate estimated in October.  Business spending on equipment increased at a 3.5 percent rate the slowest pace in two years.  Import tariffs seem to be the factor for the modest business spending as manufacturing costs for companies increase.

US Consumer Spending

Consumer spending in the US increased by the most in seven months in October, but the underlying price pressures slowed, with an inflation measure tracked by the Federal Reserve posting its smallest annual increase since February.  Consumer spending which accounts for more than two-thirds of US economic activity jumped 0.6 percent last month as households spent more on prescription medication and utilities.   Despite consumer spending being strong, there are signals that economic growth is slowing.  Data this month suggested that business spending on equipment is moderating, trade deficit is deteriorating, and the housing market is weakening.  A report from the labour market showed that the number of Americans filing applications for jobless benefits increased to a six month high last week, possibly indicating that the growth in jobs is slowing down.

Germany’s Business Morale

German business morale fell by more than expected in November as exporters got caught up in the trade dispute between China and the United States.  Munich based IFo said on Monday that the index fell for the third month in a row to 102.  IFo chief Clemens Fuest said that the economy would grow by 0.3 percent in the fourth quarter at most after contracting by 0.2 percent in the July-September period.  Tariffs imposed by the US and China are hurting German companies that manufacture in both countries and export in both directions across the Pacific.  Germany has long depended on exports for its growth and the imposed tariffs are not only leaving a negative impact on business outlook but also on the German economy. Data last week showed that weaker exports were the main reason for the quarter-on-quarter contraction in July-September and according to economists there are clear signs that overall German growth was slowing.  Besides the impact of trade tariffs the German economy is also feeling the effects of slowing growth in the Eurozone.  The third quarter GDP contraction was mainly due to weakness in the car industry amid difficulties to adjusting to new emission testing requirements.  Although this should not affect the fourth quarter, the industry remains vulnerable to trade disruptions from the US tariffs on cars manufactured in the European Union and Brexit.  For nine years the German economy has been relying on consumption supported by low interest rates, rising wages and a robust labour market.  While these factors are expected to support growth next year, plans by the government over modest tax cuts and spending increases should also help to offset some of the effects of weaker trade.

Inflation In Germany

German annual inflation accelerated at a slower pace in November but stayed well above the target set by the ECB of close to but below 2 percent, supporting the case for the ECB to roll back its massive stimulus policy in the euro zone.  According to data released by the Federal Statistics Office on Thursday, German consumer prices, harmonised to make them comparable with inflation data from other EU countries, rose by 2.2 percent year-on-year after an increase of 2.4 percent in the previous month.

Oil

On Tuesday oil prices steadied, as they were depressed by record Saudi production but supported by expectations that oil exporters would agree to cut output at an OPEC meeting next week.  The Energy Information Administration said on Wednesday that US crude stocks rose last week as refineries hiked output, while gasoline stocks decreased, and distillate inventories rose. Meanwhile, oil slipped to $60 a barrel on Wednesday amid pressure from increasing US inventories and concerns over the meeting next week. OPEC, Russia and other allies shall meet on 6th and 7^th December in Vienna to discuss oil output policy.  Producers are discussing a supply curb of 1 million to 1.4 million barrels per day and possibly more.  Earlier Brent crude, the global benchmark, was set to another 2018 low below $ 58 a barrel.   The slump since October is on par with the price crash that happened in 2008 and steeper than that of 2014-2015. Both situations prompted OPEC to agree output curbs to support the market.  On Thursday oil rose after industry sources said Russia accepted the need to cut production, together with OPEC.

Yields

Euro bond yields held close to their recent lows on Wednesday as investors continued to turn to safe-haven assets irrespective of the improvement in risk sentiment on hopes that trade tensions between US and China will ease.  World shares rose to a two-week high on Wednesday as White House adviser Larry Kudlow spoke about the possibility of a deal at the weekend.  He also said that the US side was disappointed by China’s response so far.  Investors were awaiting any possibility of reconsidering a pause in hiking interest rates when FED Chair Jerome Powell was expected to speak on Wednesday.   The German 10 year bond yield, which is the benchmark for the region, fell 0.348 percent in early trading on hopes of a trade deal between Washington and Beijing.  Italy’s government bond yields proved resilient rising around one basis point in early trade and holding close to the two-month lows reached this week as investors looked at another negative turn in Italy’s budget situation with the EU.  Italy’s 10 year government bond yield was last seen at 3.3 percent while its spread over higher rated Germany held comfortably below 300 bps at 296 bps.  EU government representatives are set to back European Commission disciplinary proceedings against Italy over its expansionary budget.  Deputy Prime Minister Matteo Salvini wants to avoid EU disciplinary action over Italy’s 2019 budget. On Thursday major EU government borrowing costs dipped to their lowest level in over two months following the US Treasury lower yields on the expectations that the US Fed is becoming more cautious when increasing interest rates.  The 10 year German yields hit a three month low of 0.322 percent down 3 basis point on the day.  French and Dutch government bond yields also dipped to their lowest since early September at 0.716 percent and 0.472 percent respectively, down about 2 bps each on the day.  Italy’s government bond yields also fell on Thursday helped by an auction of 5 year and 10 year bonds.  Meanwhile, economy minister Giovanni Tria said on Wednesday that Italy is looking for ways to contain public spending while supporting flagging economic growth to avoid disciplinary action by the European Commission.  Italy’s 5 year bond yield dipped to 2.36 percent (lower by 4bps) whilst the 10 year yield was lower at 3.24 percent (lower by 2.5 bps).

Currencies

On Tuesday sterling slumped versus the dollar and the euro on comments from the US President Donald Trump that a Brexit deal could hamper the trade ties with the United States.  Against the dollar, the British currency fell more than half a percent at $1.2734, its lowest level in nearly two weeks.  Furthermore, it fell a third of a percent against a weak euro to 88.78 pence.   The losses in the sterling were compounded by the fact that it broke through a key support level around $1.2770.  The Canadian Dollar weakened to a five-month low against its US counterpart on Wednesday as oil prices declined and ahead of the potential signing of a new North American trade pact this week.  The agreement, which was reached at end of September, reduced a source of uncertainty for Canadian businesses, however, the potential benefit for Canada’s economy has been offset by a sharp decline in the price of oil, one of the country’s major exports.  On Thursday the pound sank due to concerns over the parliament’s vote on Brexit and after the Bank of England warned of risks to the currency if there is no Brexit deal  whereby the pound could lose a quarter of its value if it that happens.  On Thursday the dollar recovered against other rival currencies as caution before the scheduled G20 meeting prompted investors to buy back the currency after the comments by the FED chair that a rising trend in US rates may be coming to a close.

Company News

Trump over General Motor’s Subsidy

Once again Trump has made threats against a US company.  Previous threats were directed at Harley Davidson, and Amazon.com.   On Tuesday he threatened to eliminate the subsidies for General Motors Co in retaliation for the automaker cutting US jobs and plants.  The automaker was also threatened by Canadian political and labour leaders for cutbacks there.  Trump also criticised GM for not closing facilities in Mexico or China.  However, Trump did not explain what subsidies he was referring to.  GM electric vehicles are eligible for $7,500 tax credit under federal law but it is not clear how the administration could restrict those credits or if Trump had other subsidies in mind.  In a statement GM said, following the statement made by Trump, that it was “committed to maintaining a strong manufacturing presence” in the United States after investing $22 billion in operations since 2009 and will add new jobs.

Malta:  Industrial Producer Price Indices – October 2018

During October 2018, the industrial producer price index registered an increase of 3.4 per cent when compared to October 2017.  This was due to a rise of 7.07 per cent in the intermediate goods sector, by 1.62 per cent in consumer goods and 0.33 percent in the capital goods sector.  There were no price changes within the energy sector.  Meanwhile, the producer price index for total industry registered a decrease of 0.35 per cent over the previous month.

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