“Lagarde’s First Speech As ECB President…”

Lagarde’s First Speech As ECB President

Christine Lagarde delivered her first speech as President of the European Central Bank on Monday.   In her speech she did not make reference to monetary policy.  She honoured the commitment of  former German Finance Minister Wolfgang Schaeuble’s to a united Europe and his statesmanship since the fall of the Berlin Wall, which allowed a divided Germany to reunite.  Schaeuble is now the President of the Bundestag, who often criticised the ECB when finance minister and the two Germans on the ECB’s Governing Council regularly opposed former ECB chief Mario Draghi’s loose monetary policy.  Germany has for long accused the ECB of hurting German savers by keeping interest rates too low.  The ECB has argued that if only Germany invested more,  instead of running budget surpluses year after year, economic growth would accelerate, and rates could rise more quickly.  Although Lagarde has not discussed monetary policy in detail since her appointment, initial hints suggest she does not plan major changes until the ECB can conduct a broad review of its policy, target and tools.

IMF Cuts Eurozone Growth Forecasts

On Wednesday the International Monetary Fund said that eurozone economic growth is set to slow more than expected as the bloc’s manufacturing crisis could spill over to the larger services sector under prolonged global trade tensions. The bloc’s economy would grow by 1.4 percent in 2020 and 2021 , said the IMF, cutting its previous estimate of 1.5 percent growth in both years.  The slowdown is mostly due to weak growth in Germany, which is the eurozone’s largest economy and stagnation in Italy, which is the third biggest economy, said the fund whilst revising down its earlier forecasts for both countries.   Germany is now expected to grow by only 0.5 percent this year, slower than the 0.8 percent the IMF had predicted in April.    The IMF cut the growth forecast for France despite the better than expected output estimates for the third quarter released last week.  France is now expected to grow by 1.2 percent the year, instead of the 1.3 percent previously forecast.  In order to countereffect the slowdown, the IMF had called for a “synchronized fiscal response” by eurozone governments.  A clear message to Berlin to invest more.  It further said that the slowdown which was mainly caused by the impact of global trade tensions on the bloc’s export-driven industry, could spill over to services, the largest economic sector in the eurozone.  Meanwhile, concerns over Brexit had negative effect on both Britain and the EU whilst the IMF confirmed its earlier estimates that the British economy would grow by 1.2 percent this year and 1.4 percent the following year.  With regards to inflation, the IMF is expecting it to be 1.2 percent this year, 1.4 percent next and 1.5 percent in 2021, falling short of the ECB target rate of below, but close to 2 percent.


Construction PMI activity was reported on Monday to have shrunk for the sixth month in a row.  Meanwhile, on Tuesday figures showed a 7 percent drop in new car sales.  IHS Markit’s services PMI edged up to 50 which represents zero growth from 49.5 in September one of the lowest readings since 2009.  The all-sector PMI stayed below 50 for a third straight month, the first time this happened since 2009.

Bank Of England Meeting

The Bank of England has resisted whilst the US Federal Reserve and the European Central Bank cut its main interest rate.  In a meeting of the Bank of England, two Bank Of England officials unexpectedly voted to lower interest rates to ward off an economic slowdown whilst others said they would consider a cut if global and Brexit headwinds do not lift.  According to the BOE its nine rate-setters voted 7-2 at their November meeting to keep the Bank Rate at 0.75 percent.  Mark Carney, the Governor of the BOE, said there were greater risks from the slowing global economy but there was also some room for hope that the Brexit uncertainty might end soon.  In fact he said, “Now it’s become possible that the picture in the UK could change, with the recent UK-EU withdrawal agreement creating the prospects for a pick-up in UK growth.”  “The pace of that recovery will depend critically on the extent to which uncertainty over the future UK-EU trading relationship actually dissipates, and, to a much lesser degree, by how much the global economy actually picks up”.

Germany’s Services Sector

Data on Wednesday showed Germany’s services sector barely grew in October, while eurozone business activity expanded slightly faster than expected last month, however, remained close to stagnation.

German Industrial Order Up More Than Expected In September

German industrial orders rose more than expected in September amid robust domestic demand, showed data on Wednesday. Contracts for “Made in Germany” goods rose 1.3 percent from the previous month, while demand for capital goods increased by 3.1 percent said the Statistics Office.  Orders from abroad were up 1.1 percent while domestic contracts increased by 1.6 percent.

Trade Talks Between The US And China

On Monday China said that Chinese President Xi Jinping and US President Donald Trump have been continuously in touch through “various means”, when asked when and where the two leaders might meet to sign a trade deal.  China is pushing US President Donald Trump to remove more tariffs imposed in September, as part of the Phase 1 deal, which could help to ease the economic damage caused by the trade war.  On Thursday the officials from both sides of China and the US said that the two countries have agreed to roll back tariffs on each others’ goods in a “phase one” trade if it is completed.  The Chinese Commerce Ministry, without laying out a timetable said the two countries had agreed to cancel the tariffs in phases. Meanwhile on Friday, President Donald Trump said he has not agreed to rollbacks of US tariffs sought by China.  This has sparked new doubts about when the long standing trade war will end.

US Begins Its Exit From The Paris Climate Pact

At a time when governments around the world are taking action to avoid any worst impact of global warming, on Monday, the Trump administration said on Monday it filed paperwork to withdraw the United States from the Paris Agreement.  This is the first formal step in one-year process to exit the global pact.  This move is part of the strategy of President Donald Trump to reduce red tape on the American industry. The US will be the top historic greenhouse gas emitter and leading oil and gas producer, once it exits to be outside the accord.

Non-Farm Payrolls In The US

US Labour Department data showed that nonfarm payrolls increased by 128,000 jobs last month whilst the economy also created 95,000 more jobs in August and September than previously estimated.

US ISM Non-manufacturing Report

A survey on the vast US service sector published on Tuesday showed that business sentiment had improved in October from a three year low in September.  The ISM non-manufacturing sector index rose to 54.7 from 52.6 in September beating market expectations.  The data came after a strong US employment report on Friday.

China Cut The Loan Rate For The 1st Time Since 2016

The Central bank of China cut the interest rate on its one-year medium-term lending facility (MLF) loans to financial institutions on Tuesday for the first time since early 2016 by 5 basis points to 3.25 percent from 3.3 percent.  The action taken by policy makers is to support a slowing economy hit by weak demand at home and abroad.  The move could pave the way for a reduction in China’s new benchmark Loan Prime Rate (LPR) in a few weeks.  It is linked to the MLF rate and is published on the 20th of every month.   The People’s Bank of China (PBOC) said it had lent 400 billion yuan ($56.92 billion) to financial institutions through the liquidity tool, slightly less than a batch of MLF loans worth 403.5 billion yuan which is due to mature on Tuesday.  Bonds have sold off amid expectations that the US and China will reach a trade dal and on fears that the central bank will be held back by quickening consumer inflation, which has jumped to a near 6-year highs largely due to rising pork prices.  Since early September, the yield on benchmark 10-year Chinese government bonds has risen about 30 basis points.

Australia’s Central Bank

On Tuesday Australia’s central bank (RBA) held interest rates steady as expected.  It also said that rates are to remain low for an extended period.   Rates were kept on hold at 0.75 percent and made small changes to its economic forecasts by trimming both growth and unemployment.  The bank has already since June eased by 75 basis points.  The cuts have been successful in reviving the stagnant housing market and demand drove prices up last month by the most since 2015.  So far however, there was no rebound in consumer spending, which is more needed.  Data which was out on Monday showed that retail sales declined in the year to September when adjusted for inflation, a downturn not seen since the recession of the early 1990s.  The RBA cut its economic growth forecast for this year to 2.25 percent from 2.5 percent, but still expected a pick up to 3 percent by 2021.  Core inflation has remained in 2-3 percent target band for four whole years, implying unemployment has to fall some way from the current 5.2 percent level to revive wages and inflation.

Canada’s September Trade Deficit

Canada’s trade deficit in September narrowed to C$978 million as imports fell faster than exports, ending the third quarter on a weak note, indicated Statistics Canada on Tuesday.  Lower shipments of energy products helped cut the value of exports by 2.3 percent in the third quarter after they jumped 4.8 percent in the second quarter.  Last week the Bank of Canada said the Canadian economy was not immune to global trade conflicts, including tensions between the US and China.

Currency Roundup

The British pound drifted higher on Tuesday but remained within recent trading ranges after a survey showed that the services sector in Britain stagnated last month amid concerns over Brexit.  Whilst, against the dollar the pound rose 0.2 percent at $1.2901, coming off from an earlier session high of $1.2904, against the euro the pound edged 0.1 percent up to 86.25 pence.  The Chinese currency has risen to 2 ½ month highs against the dollar this week amid signs that China and the US may be moving towards reaching a deal that could de-escalate the trade war.  The dollar advanced against the yen on Tuesday over growing optimism that the US and China are on the verge of reaching a preliminary agreement.   The yen and the swiss franc, two safe-haven currencies during times of economic or political turmoil took losses as investors became more comfortable taking on risk.  Meanwhile, the Australian dollar held steady after the Reserve Bank of Australia kept the monetary policy unchanged, as expected with the main concern being consumer spending.  The pound was neutral on Wednesday as investors calculated the risks which the upcoming general election poses to Britain’s ability to sign a trade deal with the EU before 31 January, which is the new deadline to exit the EU.  The dollar drifted lower on Wednesday as investors sought more clarity about the negotiations.  The yen which is considered a safe-haven was higher on the day against the dollar as some uncertainty returned back into the market.  The dollar held the upper hand against its rivals on Wednesday in particular against the traditional safe-haven currencies amid rising hopes for a US-China trade deal and a string of solid US economic data.  The euro stood at $1.11073 having dropped 0.49 percent on Tuesday and was not far from a near three-week low of $1.10635 hit in US trade on Tuesday.   The dollar gained versus the yen on Thursday after comments from a Chinese commerce ministry spokesman about the terms of a possible trade deal that led investors to dump safe-haven currencies such as the Japanese yen.   Sterling fell to a two-week low on the same day as two BOE officials unexpectedly voted to cut interest rates this month

Markets Wrap

Market optimism about the progress in the US-China trade negotiations moved US stock indexes to record highs on Monday and also energy shares gained the most of the 11 major S&P sectors. Also, optimism over trade talks helped the European shares close at their highest level in nearly two years on Monday.  Meanwhile, a strong earnings report by Ryanair lifted Irish stocks to a more than one-year high.   On Tuesday all three main index on Wall Street opened higher for a fifth straight session as technology stocks rose over rising hopes of a trade truce between the US and China.   Germany’s 20-year bond yield climbed on Tuesday for the first time since July, tracking other debt markets across the developed world over optimism around the US-China trade talks and robust US service data.  After closing at a four-year peak in the previous session, European shares took a breather on Wednesday as a mixed earnings reports and weak services sector data from the eurozone weighed on sentiment.  European shares were close to all-time highs, ending on Tuesday at a more than four-year peak as investors were more optimistic about the US and China situation.  France’s 10-year government bond yield turned briefly positive on Wednesday for the first time, amid an upbeat in German data and optimism over the talks between the US and China, that lifted borrowing costs across the eurozone to 3 ½ month highs.  On Thursday the S&P 500 and the Dow Jones indexes hit record highs helped by gains in technology stocks over signs of progress in the US-China trade relations and fresh upbeat earnings reports.  There was a surge of optimism in global markets on news Beijing and Washington had agreed to roll back tariffs as part of a first phase of a trade deal.  Markets were kept on their toes on Friday amid the uncertainty over the trade negotiations between the US and China, with European stocks benchmarks mimicked their Asian peers and retreated from the highs of the previous session.  On Wall Street, the Dow and S&P 500 reached record closing highs over hopes of the truce to end the tariff war, however a Reuters report that the White House opposed aspects of the tentative deal limited the gains for the day.   The mood is in conflict with the optimism reached on Thursday in global markets on news that Beijing and Washington had agreed to roll back the tariffs as part of a first phase of a trade deal.  There are worries that the pact could fall apart.


Oil prices rose on Monday amid a better outlook for crude as better-than-expected growth in US jobs added to hopes that the US-China trade deal would be reached this month.  According to oil market analysts, improved US jobs growth numbers in October and the upward revisions of the two previous months, that were reported on Friday, eased the fear of a global economic slowdown that would slow crude demand.  According to analysts, the Federal Reserve’s interest rate cut last week and recent weakness in US dollars has also helped lift prices.  The demand for crude oil, which is traded in US dollars, strengthens when the dollar weakens.  Oil prices rose on Tuesday on hopes of a US-China trade agreement and on optimism that Washington could roll back some of the tariffs it has imposed on Chinese imports.  Wednesday saw oil prices falling after a larger-than expected increased in US crude inventories and weak eurozone economic figures that have reversed the gains of the previous three sessions.  Meanwhile, OPEC also said that it would supply a diminishing amount of oil in the next five years as output of US shale and other rival sources expands.


Gold prices dropped on Tuesday extending losses to a second session, amid hopes that the US and China trade pact bolstered the dollar and investors turned to riskier assets.  A stronger dollar makes gold more expensive for buyers holding other currencies.  Gold prices were steady on Thursday over worries that a long-awaited trade deal between the US and China could be delayed until December, making investors more cautious.

Malta:  Inbound Tourism For September 2019

During the first nine months of this year inbound tourist trips for the first nine months of 2019 amounted to 2,135,425 an increase of 4.8 percent over the same period of 2018.  Total tourism expenditure was estimated at almost EUR 1.8 billion, 4.2 percent higher than that recorded for 2018.  Meanwhile for the month of September total inbound visitors were estimated at  287,461 an increase of 3 percent when compared to the corresponding month in 2018.   A total of 261,696 inbound tourist trips were carried out for holiday purposes, while a further 16,750 were undertaken for business purposes.  Inbound tourists from EU Member States went up by 5.6 percent when compared to the corresponding month in 2018.  Total tourist expenditure was estimated at EUR 257 million, an increase of 5.9 percent over the corresponding month in 2018.

Malta:  Index of Industrial Production – September 2019

When compared to September 2018, the working day adjusted index of industrial production increased by 3.8 percent with increases being registered in the production of consumer goods (12.2 per cent) and capital goods (6.1 percent).  The production of energy and intermediate goods decreased by 6.5 percent and 3.7 percent respectively.  Meanwhile in September, the seasonally adjusted index of industrial production decreased by 3.7 percent over the previous month.

Antonella Mercieca

Client Relationship Manager


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


November 8th, 2019

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