“Mario Draghi’s Final News Conference As President Of The ECB…”

Mario Draghi’s Final News Conference As President Of The ECB

European Central Bank President Mario Draghi chaired his final news conference on Thursday after an eight-year tenure at the bank.  It was not the grande finale he was hoping for as he stood in the same place he started whereby he tried to support a perpetually weak European economy.  His 2012 promise to do “whatever it takes” to save the euro, a code to rescue heavily indebted countries, is credited with saving the shared currency from collapse.  Draghi kept the door open to more stimulus days before handing the reins of the bank to new ECB chief Christine Lagarde.  Despite the weak growth across the eurozone, Draghi insisted that the benefits of loose monetary policy far outweighed the risks and rejected the suggestion that a public split with policy hawks in the bank had tainted his legacy.  He told a news conference, “I feel like someone who tried to comply with the mandate in the best possible way”. His term has passed without a single interest rate hike.  While acknowledging that the bank was keeping a close watch for any unintended consequences of ultra-low and negative interest rates, he added that they had clearly stimulated the economy through higher lending and helped to boost employment.  Draghi has led the ECB in an unprecedented experiment with unconventional monetary policy that has helped avert deflation and stopped the debt crises from spreading.  When asked about what advice he had for former International Monetary Fund chief Lagarde who attended but did not participate in Thursday’s meeting, he said, “No advice needed”.   At the Thursday meeting the ECB has kept its benchmark deposit rate unchanged at minus 0.5 percent.  It also reaffirmed that its open bond purchases will start in November, at a rate of 20 billion euros per month and will run “as long as necessary.”  Despite the opposition from a third of policymakers, the open-ended bond buying scheme will tie his successor’s hand for years to come.

Eurozone Business Activity

Eurozone Business activity stagnated in October as demand slowed, according to a survey published on Thursday.  Inflation in the eurozone is still weak at less than half of the ECB’s target.  Preliminary Purchasing Managers’ Index readings for October added further weight to the fear that the economic outlook is getting more gloomy.    The IHS Markit’s flash composite PMI, which is seen as a guide to economic health was 50.2 just above the September’s final reading of 50.1.  It is close to the 50 mark that separates growth from contraction.  IHS Markit said the eurozone PMIs indicated economic growth of just under 0.1 percent his quarter.  Meanwhile an index measuring new business rose only slightly to 49.1 from 48.7 which is the second month below the breakeven mark.  Earlier data also showed that Germany’s export-dependent manufacturing sector remained in contraction this month, suggesting a third-quarter slowdown in Europe’s largest economy that could stretch into the last months of the year.  French activity picked up more than expected amid a firmer service sector. A PMI for the bloc’s dominant service industry nudged up to 51.8 from September’s 51.6 which had been its lowest reading since the start of this year.  Optimism among services firms was at its weakest since mid-2013.  The business expectations index sank to 56.5 from 58.6.  Manufacturing activity contracted for a ninth straight month according to the PMI and held steady at September’s 45.7, a figure as low not seen in seven years.


Lawmakers on Saturday voted to withhold a decision on the deal by Johnson, a move that forced him to seek from the EU a third extension of BREXIT.  Johnson was ambushed on Saturday in parliament by opponents who demanded a change to the sequencing of the ratification of the deal.  This exposed the prime minister to a law that forced him to request a delay until 31st January.  Johnson sent the note to the EU unsigned and added another signed letter arguing against what he said was a deeply corrosive delay.   In his own letter which he signed he said, “A further extension would damage the interest of the UK and our EU partners, and the relationship between us.”  The EU has not as yet given a clear response but is preparing the steps to ratify the deal in the European Parliament.  Boris Johnson on Monday appealed to parliament to approve the Brexit Bill this week, stating that he, the EU or the public did not want any more delays to Britain’s departure from the EU.  In a statement on Monday, Johnson said, “We negotiated a new deal so that we can leave without disruption and provide a framework for a new relationship based on free trade and friendly cooperation.”  On Monday John Bercow the British parliamentary speaker told the government that it could not again try to get a vote on Prime Minister Boris Johnson Brexit deal because it was posting the same question to parliament twice.  Bercow also said that the British government still has the opportunity to get its Brexit deal through parliament (if it had the numbers in parliament) in time to leave the European Union at the end of October.  Instead he said, it could pursue the route of getting the legislation required for Britain’s departure from the European Union through parliament first rather than having a straight ‘yes’ or ‘no’ vote on the agreement. After the parliamentary speaker ruled out a ‘yes’ or ‘no’ vote on the deal itself, Johnson is now looking to pass the legislation by implementing the agreement through parliament as quickly as possible.  In a second reading on Tuesday, Prime Minister Boris Johnson won approval for his Brexit legislation, which is the first step towards forcing his deal through parliament so that Britain leaves the EU on 31 October.  Lawmakers voted 329 versus 299 in favour of the Brexit legislation, paving the way for a vote on the so-called program motion, that sets an accelerated timetable for parliament to approve the Withdrawal Agreement Bill by end of Thursday. They then  opposed by 322 to 308 votes to Johnson’s extremely tight timetable.  Meanwhile, Donald Tusk recommended late on Tuesday evening that the leaders of the remaining 27 member states back a delay.  Now the rest of the bloc will have to decide whether the 31 October deadline should be pushed back to the end of January as requested by Johnson in the letter he was forced to send on Saturday by British lawmakers.    The length of an extension could decide the course of Brexit whereby a long delay would allow time for an election and for opponents of the divorce to push for another referendum.  A short delay might on the otherhand put pressure on parliament to approve a deal.

Trade Talks

China and the US have achieved some progress in their trade talks, according to Vice Foreign Minister Le Yucheng and problems could be resolved if both sides respected each other.  He further said that the world wants China and the US to end their trade war.  That required openness rather than a “de-coupling” of countries or a new Cold War.  The countries have been working to resolve their trade dispute, with the US announcing a “phase 1” deal with China on trade matters and suspending a scheduled tariff hike for October.   China’s foreign ministry accused US lawmakers last week of “sinister intentions” to undermine Hong Kong’s stability after they passed measures related to the anti-government protests that have rocked the city for months.  The Hong Kong Human Rights and Democracy Act, one of the measures passed by the US House of Representatives, would require the US secretary of state to certify each year that Hong Kong retained its autonomy in order to receive special treatment as a major financial centre.  Le further said that China could continue to safeguard its national security.  The world had become safer and more peaceful because of China’s development. US and Chinese trade negotiators are working on writing down a Phase 1 trade deal text for their presidents to sign next month, on the hope to resolve a trade war.  Adding to the tensions, China is now seeking $2.4 billion in retaliatory sanctions against the US for non-compliance with a WTO ruling over a tariffs case dating back to the Obama era, showed a published document.

US Business Investment

New orders for key US-made capital goods fell more than expected in September and shipments also declined, a sign that business investment remains slow amid the US-China Trade war.  The Commerce Department said that orders for non-defense capital goods excluding aircraft, which is seen as a measure of business spending plans on equipment, fell 0.5 percent last month on less demand for transportation equipment, motor vehicles and parts, and computers and electronic products.  Core capital goods orders increased 1 percent on a yearly basis while shipments of such goods dropped 0.7 percent last month.  Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.  The manufacturing sector that makes up about 11 percent of the US economy, has been affected by the trade war.  Business confidence and investment have been hurt and there is uncertainty over the economic outlook.

Currency Roundup

On Monday sterling traded at around $1.30, a 5 ½ month high and was unmoved by the House of Commons speaker John Bercow’s decision not to immediately allow a vote on the Brexit withdrawal deal.  The currency slipped for a short time after Bercow’s ruling on Monday when he said that the same issue had been discussed on Saturday.  Whilst holding to the 6 percent gains since 10th October, the pound was at $1.2984 after Bercow’s statement, after slipping from an earlier high of $1.3012.  Against the euro, the pound strengthened 0.3 percent to 85.89 pence.  The dollar moved to its worst month since January 2018 on Monday amid the Brexit situation that pushed the sterling to a 5 and ½ month high.  Asia had dragged the pound 0.5 percent lower but it rebounded in Europe and briefly broke the $1.30 for the first time in 5 ½ months on the news.  The dollar this month is 2.5 percent down against a basket of top currencies which if it stays that way, would be its worst month since January last year.   On Monday it hovered at $1.1157 per euro but managed to move to 108.48 against the safe-haven Japanese yen.  The yen has been weak too hitting a 2 ½-month low.  The Bank of Japan shall meet next week and Governor Haruhiko Kuroda told Reuters at the IMF meeting that it could “certainly” cut rates again if needed.  Meanwhile, Monday saw China’s yuan firming after its central bank fixed the daily midpoint at its strongest in five weeks.  A comment from the central bank chief that the exchange rate was at the “appropriate level” reinforced market sentiment.  In a statement posted on the website of the IMF on Saturday, the PBOC Governor Yi Gang said the yuan is at “an appropriate level” based on economic and market fundamentals.  The euro was steady on Tuesday after rising to a two-month high in the previous session against the dollar as traders waited for the British parliament to vote on the Withdrawal Agreement.  Traditional safe-haven currencies such as the yen, and the swiss franc have given back gains this month as global investor risk sentiment improved on optimism over US-China trade and Brexit deals.  The pound edged lower on Wednesday after an overnight fall as the British parliament remained undivided on the Britain’s departure from the EU.  It fell 0.16 percent to $1.2856 after an 0.7 percent drop on Tuesday, whilst against the euro, the pound eased at 86.55 pence following an 0.5 percent decline in the previous session.  Meanwhile, the yen rose against the US dollar and the Australian dollar as some investors looked for safe-haven amid doubts about Brexit and tensions from the trade war.    On Thursday the Swedish crown rose 0.7 percent as the central bank stuck to its plans to raise interest rates in December and the Norwegian crown followed suit, despite a relatively dovish message from the Norges Bank.


Canadian Prime Minister Justin Trudeau’s Liberals held onto power after a closely fought election on Monday but were reduced to a minority government that will need the support in Parliament of a smaller left-leaning party.  The vote showed a deeply divided country with the defeated Conservatives winning the popular vote.  According to Elections Canada, the Liberals were leading in 156 out of 338 seats in Monday’s vote.  That put the Liberals far short of the 170 seats needed for as second straight majority government.

Markets Wrap

Monday saw European shares breaking the three-day run of losses amid hopes that Britain will avoid a disorderly Brexit, while positive corporate updates and comments on US-China talks added to the upbeat sentiment. The pan-European STOXX 600 index ended the session 0.6 percent higher.  The London blue-chip FTSE 100 was up 0.2 percent, lagging the broader markets due to a strong pound.  The FTSE mid-cap index of domestically focused stocks closed up 0.4 percent.  Most of the sub-sectors were in the black led by miners and banks but defensive sectors including healthcare and real estate lagged the broader market.  The German DAX and the Switzerland SSMI both bucked the trend.  The Switzerland SSMI was helped with the 1 percent increase in drug maker Novartis after raising its 2019 targets and reported better than expected revenue.  Meanwhile, another Swiss company, Apple supplier AMS also climbed by 6 percent as demand from smartphone makers boosted operating profit.  Monday also saw US Treasury yields rising as investors sold safe-haven debt on optimism about a potential US-China trade deal and a possible resolution to the major issues on Brexit.  The US 10-year and the 30-year yields rose to five-week highs.   Since early September, both the 10 year and the 30- year yields have risen about 30 basis points.  Also, longer-dated British government bond yields touched a 12-weeks high on Monday as the risk of an a no-deal Brexit faded after parliament forced Prime Minister Boris Johnson to write to the European Union to ask for a delay.  Eurozone bond yields also rose on Monday as investors sold safer assets.  European shares rose on Thursday lifted by auto stocks after upbeat earnings from Daimler and from German companies.  Investors, meanwhile waited for economic data and a meeting of the central bank rate meeting in the euro area.


Oil prices dropped on Monday nearly 1 percent as concerns about economic growth that would reduce the demand for oil and signs of global supplies put pressure on prices.  Brent crude futures fell 0.8 percent to settle at $58.96 a barrel, while US West Texas Intermediate crude futures fell 0.9 percent to settle at $53.31 a barrel.    OPEC, Russia and other oil producers (OPEC +) agreed in December to cut supply by 1.2 million barrels per day from the beginning of the year.  Russia, the world’s second largest oil producer said on Sunday that it did not meet its supply reduction commitment in September because of an increase in natural gas condensate output as the country prepared for winter.  Talks are being held between OPEC members Kuwait and Saudi Arabia to resume oil production from joint fields in the Neutral Zone between the two countries. Whilst China’s economic growth slowed to 6 percent year-on-year in the third quarter, it weakest in 27 ½ years, a 9.4 percent year-on-year increase in China’s refinery throughput for September signalled that petroleum demand remained robust.  Meanwhile, oil prices extended their gains on Thursday with Brent rising above $61 a barrel as a surprise drop in the US crude inventories and the prospect of further market-support action by OPEC and its allies will offset some concerns over the outlook for demand.

Malta:  General Government Balance And Debt Under Maastricht Treaty

In 2018 the General Government registered a surplus of EUR 235.6 million equivalent to 1.9 percent of GDP (a decrease of 1.5 percent when compared to the surplus of 3.4 percent registered in 2017).  The balance is calculated as the difference between total revenue (EUR 4,764.20 million) and expenditure (EUR 4,528.6 million) of General Government.  Comparing 2018 to 2017, total revenue increased by EUR 325.4 million, while total expenditure increased by EUR 475.1 million.  The General Government Debt decreased by EUR 41 million to EUR 5,641.1 million over 2017.  The debt-to-GDP ratio for 2018 fell to 45.8 percent.

Malta:  Quarterly Accounts For General Government – Q2 Of 2019

During the period April to June, total revenue stood at EUR 1,270.50 million, an increase of EUR 88.9 million when compared to the corresponding quarter in 2018.  The key contributors to this growth were current taxes on income and wealth and taxes on production and imports with an increase of EUR 4.6 million and EUR 28.5 million respectively.  Decreases were recorded in Net Social contributions receivable, property Income receivable and current transfers receivable.  Total expenditure in the second quarter amounted to EUR 1250.9 million an increase of EUR 186.9 million over the previous quarter in 2018.  Increases were recorded in almost all components of general government expenditure, mainly in Gross capital formation (EUR 46.3 million) and social benefits and social transfers in kind (EUR 42.30 million) amongst others.   Meanwhile at the end of June, the General Government debt stood at EUR 5,832.0 million, showing an increase of EUR 58.4 million over the corresponding quarter in 2018.  In the second quarter of 2019, the General Government recorded a surplus of EUR 19.7 million.

Malta:  Registered Unemployment – September 2019

In September, the number of persons registering for work stood at 1,668 decreasing by 8 percent when compared to the corresponding month in 2018.  The largest share of males and females on the unemployment register sought occupations as clerical support workers with 18.5 percent and 38 percent respectively.






Antonella Mercieca

Client Relationship Manager


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


October 25th, 2019

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