“Greek President’s Approval For A Call For Snap Election …” 

Greek President’s Approval For A Call For Snap Election 

The Greek president accepted a request from Prime Minister Alexis Tsipras to dissolve parliament on Monday triggering a snap election that Tsipras called for next month.  Tsipras called the snap election four months before the end of his term after the main opposition conservative New Democracy beat his leftist Syriza party by 9.5 points in the election for European parliament last month.  Tsipras stormed the Greek political stage six years ago, promising to fight austerity prescribed by Greece’s lenders in return for financial bailout after years of economic crisis.  Greece has emerged from economic adjustment programs in 2018 after borrowing more than 280 billion euros in three separate bailouts.

Yields in Italy, Spain and Germany

Long dated Italian government bond yields increased by 7 to 9 basis points on Wednesday after a surprise launch by Italy’s debt office of the 20-year bond as it looked into taking advantage of hefty demand for European government debt.  Despite the fact that the European Union is expected to take disciplinary action against Rome over the country’s growing debt, demand for the sale was strong.  Italy’s 10- year government bond yield was up 6.6 basis point to 2.375 percent while longer dated 20 and 30-year yields were up nearly 9 basis points each.  Spain also hit bond markets on Wednesday with its 10-year debt, even though Spain’s debt is trading at record low yields.  Germany’s 10-year bond yield, the benchmark for the bloc, dropped to minus 0.24 percent, amid concerns related to the trade disputes.

The Global Use Of The Euro

According to the ECB the global use of the euro currency surged from record lows last year, mostly on a flight from the dollar due to the volatility of American politics and concerns about rising US interest rates.  Although the dollar remains by far the most widely used currency in the world, its market share has been on a steady decline over the past decade, as countries diversify into smaller currencies including the Japanese Yen and the China’s renminbi.  According to ECB board member Benoit Coeure, “its primarily a diversification away from the dollar, which benefits the euro.”  He added that visible progress in reforms and growing prosperity even on the bloc’s periphery added to demand for the euro.  In global foreign exchange reserves, the euro’s share rose by 1.2 percent to 20.7 percent.  This is below the dollar which stands at 61.7 percent and is a historic low for the US currency.  In foreign currency debt issuance, the market share of the euro increased by 2.5 percent to 22.7 percent amid a stronger dollar, along with higher US interest rates that raised concerns over higher debt servicing costs, particularly in emerging market economies.  In global loans, the market share of the euro rose 0.8 percent to 19.3 percent while in daily foreign exchange trading, it rose by 0.7 percent to 37.7%, said the ECB.

BREXIT

Eurosceptic Boris Johnson who is a frontrunner, said that he would be willing to take the nation out at the end of October, even if it meant leaving without a deal.  Labour on Wednesday will debate a motion to seize parliamentary time on 25 June to give lawmakers the chance to introduce legislation preventing a no-deal Brexit.  The majority of lawmakers oppose leaving without a deal and other leadership contenders have warned parliament will block any attempt to do so.

British Wages

Official figures showed on Tuesday that British wages in the three months to April grew faster than expected and hiring slowed less sharply.  The jobless rate held at its lowest rate since 1975.  Official data also showed that total earnings growth, including bonuses, rose by an annual 3.1 percent in the three months to April (In March the increase was 3.3 percent).  Since June 2016 Brexit vote, Britain’s labour market has performed robustly whilst other parts of the economy have suffered from the uncertainty amid the timing and the terms on which Britain leaves the EU.  Furthermore, official figures on Monday showed that the economy shrank by 0.4 percent in April, the biggest monthly drop since 2016.  Meanwhile, the unemployment rate remained at 3.8 percent as expected.

China’s Exports

China’s exports unexpectedly returned to growth in May despite higher US tariffs.  Imports however fell the most in nearly three years, a sign of weak domestic demand that could prompt Beijing to step up stimulus measures.  China’s May exports rose 1.1 percent from a year earlier, compared with market expectations for a modest decline, customs data showed.  While China is not as in the past dependent on exports, they still account for nearly a fifth of its gross domestic product.  Meanwhile, May’s imports were much weaker than expected, falling 8.5 percent, the sharpest drop since July 2016, leaving the country with a trade surplus of $41.65 billion for the month.  Imports of copper, a red metal which is widely used in construction, electrical goods and manufacturing fell.  This metal is considered as a lead indicator of the health of the economy.  For January-May, China’s total exports rose just 0.4 percent from a year earlier, while imports declined 3.7 percent.  As trade pressures intensified, analysts believe that China will loosen policy further to shore up economic growth.

China Factory Inflation and Rare Earths

Weak factory inflation data from Beijing and the prospects of an escalation in the Sino-US trade spat reduced risk appetite.  China’s factory gate inflation slowed amid sluggish commodity demand and unsteady manufacturing activity reinforced the worries about economic growth.  With the news, China and Hong Kong stocks dropped on Wednesday.  Meanwhile, rare earth exports by China, which is the world’s dominant producer, fell 16 percent in May from a month earlier amid an increased focus on the raw materials due to the Sino-US trade war.  The drop was in line with the usual trading.

Trade Tensions Between US And Mexico

Last Month Trump threatened 5% tariffs on Mexican goods to be imposed on Monday.  However, on Friday President Donald Trump retreated from last month’s threat in exchange for moves on immigration.  The joint communique issued by the two countries provided few details, with some critics saying there have been no new major commitments to slow the migration of Central Americans to the United States.  The agreement would expedite a program known as the Migration Protection Protocols which sends people seeking asylum in the US to wait in Mexico as their cases are processed.  On the news, investors were worried that a second major US trade dispute would drive the global economy into recession.

Trade Tensions Between The US And China

Trade tensions between the US and China still lingered.  The Group of 20 finance leaders state that trade and geopolitical tensions have raised risks to improving global growth while stopping short of calling for a resolution of the conflict.  Meanwhile, Trump on Monday said he was ready to impose another round of punitive tariffs on Chinese imports if he cannot make progress in the trade talks with Chinese President Xi Jinping at the G20 summit.

Markets Wrap

European shares rose on Monday amid strong data from China and the reaching of a deal between the US and Mexico that was of some relief to markets.  Investors were concerned about President’s Trump aggressive trade bargaining.  Furthermore, car company shares were also lifted from signs of actions towards reviving the Fiat-Chrysler and Renault’s merger.  On Tuesday, European stocks finished higher for a third day, as German shares caught with the global stock rally.  The pan-European STOXX 600 index closed at its highest level since 17 May, on miners, auto stocks and chemical companies, after reports that Beijing was opening its doors to more spending by local governments.  Trading after Whit Monday holiday, Germany’s trade-sensitive DAX, rose 0.9 percent amid gains from car makers BMW, Daimler and Volkswagen AS.   European stocks climbed over 4 percent from their early June lows on positive trade headlines and the prospect of interest rate cuts by the US Federal Reserve.   Meanwhile, Madrid’s bank-heavy IBEX was a laggard after Morgan Stanley lowered its earnings estimates for Spanish banks for 2020 and 2021 after a flatter yield curve as a result of the European Central Bank’s move towards reducing interest rates. Wall Street followed Europe after the surge in the DAX, whilst China stocks rose on Beijing easing financing rules to boost local government spending on public works and expectations of lower central bank rates globally.   On Wednesday, European shares pulled back from the three-week highs as this month’s recovery rally ran out of steam amid soft Chinese factory activity and trade tensions.

Currency Roundup

On Monday, the dollar gained after US and Mexico reached a deal to avoid tariffs while the euro faltered after sources said that the European Central Bank policymakers were open to cutting interest rates, should economic growth slows.  On Wednesday the dollar edged lower for a second consecutive day on growing expectations of a US rate cut next week, while other currencies suffered amid the ongoing trade tensions.  The concerns about a deceleration in growth have undermined the appetite for risky currencies with the Australian dollar weakening 0.3 percent versus the Swiss franc and the Japanese yen rising 0.2 percent against the dollar.  The euro was broadly steady at $1.1360 and was close to reaching a three-month peak of $1.1348 which was reached on Friday.  The euro was little affected by Donald’s Trump accusation that Europe was devaluing the euro, which has gained roughly 1.4 percent against the dollar so far in June.  Meanwhile the pound rose towards a three week high on Wednesday after Britain’s main opposition party said it would try to introduce parliamentary legislation to prevent a no-deal Brexit.  Investors are concerned that the next prime minister could put Britain on course for a no-deal divorce and send the pound plummeting.  On Thursday the Australian dollar was the big loser after mixed employment data raised the expectations for an interest rate cut.  The Yen rallied on fading hopes for a US China trade deal at the G20 meeting this month.  Meanwhile, massive street protests in Hong Kong drove investors into safe-haven assets.

Oil

Oil prices were steady on Monday as major producers Saudi Arabia and Russia had yet to agree on extending an output-cutting deal whilst the US and China trade tensions continued to threaten the demand for crude.  OPEC and some other non-members including Russia, have withheld the supplies since the start of the year to keep prices high.  The deal will expire this month.  Many oil exporting countries have confirmed they are prepared to hold a policy meeting with OPEC in Vienna over 2nd to 4th July instead of the scheduled date later this month.  Oil prices dropped more than 2 percent on Wednesday on an outlook of weaker demand and a rise in US crude inventories.  Meanwhile, the US Energy Information Administration (EIA) cut its forecasts for 2019 world oil demand growth and US crude production on Tuesday.  Investors got nervous about suspected attacks on two oil tankers in the Gulf of Oman which sent crude oil prices soaring, adding to the heightened tensions between Iran and the United States.

China’s Crude Oil Imports

China’s crude oil imports slipped 8 percent in May from an all-time high hit the month before, customs data showed, China curbed shipments from Iran amid tightening of US Sanctions on the country.  Meanwhile, China has instead been stepping up purchases from other countries in the Middle East such as Saudi Arabia, Iraq and the United Arab Emirates as well as Brasil.  China’s crude imports in the first five months of 2019 hit a total of 205 million tonnes, up 7.6 percent from the same period last year.  Meanwhile, China’s product exports for the first five months hit 27.09 million tonnes up from 25.55 million tonnes in the same period in 2018.

Malta:  International Trade In Goods – April 2019

Provisional data for registered international trade recorded a trade deficit of EUR 234.2 million during April (2018:  EUR 268.9 million). Both imports and exports experienced a decrease of EUR62.3 million and Eur 27.6 million respectively.  The decrease in the value of imports was primarily due to mineral fuels, lubricants and related materials.  On the exports side mineral fuels, lubricants and related materials, machinery and transport equipment accounted for the main decrease.   Meanwhile during January to April 2019, the trade deficit widened by EUR 606.7 million when compared to the corresponding period of 2018 reaching EUR 1,515.4 million.

Antonella Mercieca

Client Relationship Manager

Source:

Reuters, Bloomberg, https://nso.gov.mt

Date:

June 14th, 2019


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