“NAFTA…”

NAFTA

The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA) which is 24 years old, putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact.    Trump threatened he could still put tariffs on Canadian-made cars if Canada did not join its neighbours and warned he expected concessions on Canada’s dairy protections.  Negotiations among the three partners whose mutual trade totals more than $1 trillion annually have dragged on for more than a year. The Mexican peso and the Canadian dollar were put under pressure, however both currencies gained against the US dollar after Monday’s announcement.  The political stakes for the three countries are high as the republicans and Trump are due for election in November and want to ensure farmers and other voters whose jobs depend on trade with Canada and Mexico that the deal is sealed.  Mexican President Enrique Pena Nieto wants to sign the agreement before leaving office at the end of November and Trudeau faces a national election by October 2019.  The Mexico-US discussions have focused on crafting new rules for the automotive industry which US President Donald Trump has put at the heart of his drive to rework the 24-year old pact which according to him has been a “disaster” for US workers.  The benchmark S&P 500 and the Nasdaq indexes hit records, while bond prices and copper prices rose on the news that the US and Mexico agreed to overhaul the NAFTA.   Meanwhile, on Wednesday the leaders of the US and Canada, expressed optimism that an agreement could be reached of a new NAFTA deal by the deadline on Friday.  Canada, however warned that a number of tricky issues remained. US President Donald Trump has set a Friday deadline for the three countries to reach an in-principle agreement, which would allow Mexican President Enrique Pena Nieto to sign it before he leaves office at the end of November.  Under US law Trump must wait 90 days before signing the pact.

Speech By Federal Reserve Chairman

Federal Reserve Chairman Jerome Powell speaking in Jackson Hole Wyoming said that a gradual approach of raising rates remains appropriate to protect the US economy and job growth, despite the critic of higher borrowing costs by President Donald Trump.  With his comments the dollar weakened.  Meanwhile, last Friday, global equity markets rose after Powell said the US central bank policies are best to keep the economy humming, spurring new high on Wall Street, while oil price increased on signs that Iran sanctions can have an adverse effect on worldwide supply.

Italy’s and German Bond Yields

The gap between Italian and German bond yield spread was at its widest in just over five years on Thursday as Italian government bonds came under renewed selling pressure. The gap between Italian and German 10 year bond yield increased to 288 bps the widest since July 2013.   The two, five and 10 year Italian bond yields rose to reach three-months highs.  Analysts cited a pickup in risk aversion in general as well as some concern ahead of a key Italy ratings review on Friday for the late selloff in Italian debt.  Earlier in the session, Italy sold 7.75 billion euros of new bonds in auctions.

Macron To Target French Welfare Spending

In its next reforms, the French President Emmanuel Macron’s government will tackle social spending as weaker than expected growth puts pressure on the budget deficit, the French prime minister said on Sunday.   Edouard Philippe, the French Prime Minister, said that the government would press on with its reform drive, amid the record unpopularity after a little more than a year in office.

German Business Sentiment

German business confidence rose for the first time in nine months as concerns of businesses about rising trade tensions have eased.  The Ifo institute’s gauge increased to 103.8 in August from 101.7 in July.  The increase is the first, since the index started declining from a record high late last year.

Angela Merkel

After the summer break, the German Chancellor said, Europe needs to take on more global responsibility including defence.  Merkel hosted Vladimir Putin in Germany and they agreed to push ahead with the Nord Stream 2 pipeline, which will increase Russian gas supplies to Germany, despite the possibility of US sanctions after Trump said Germany’s energy imports make it “a captive of Russia”.  Merkel stopped in Azerbaijan over the weekend where she flagged her support for the Southern Gas Corridor, which is a project backed by the US and the EU to lessen dependency on Russian natural gas.  This week, Merkel will travel to three African countries to promote investment and growth as a way to curb migration to Europe.  Meanwhile, next month she is expected to talk with President Emmanuel Macron in Paris about proposals to strengthen the euro area.

UK Professional Services Firms’ Mood Lowest Since November 2016 – CBI

Businesses in the UK are at their most downbeat since November 2016, amid slowing sales growth and fast-increasing costs, as well as uncertainty about the terms at which Britain will exit the European Union next year.  The confederation of British Industry said its quarterly survey of service-sector sentiment stand to -4 from +14 for firms providing services in areas such as computing, consultancy and telecoms, and costs rose at the fastest pace since August 2008.  Consumer-facing businesses did better, after optimism recovered to an above-average +7 in the three months to August from a dip to -11 in May.  Their profits were effected by rising costs.   Official data showed that Britian’s services sector stagnated in June and recorded only modest annual growth of 1.5 percent.  Britain’s Brexit minister Dominic Raab last week said he was confident of securing an interim deal with the European Union before the deadline of March 2019 but warned of red tape, border delays and costlier credit card fees without a deal.

The Pound and FTSE

The pound surged, as the fear of a ‘hard Brexit’ eased, after Michel Barnier, the European Union’s chief negotiator, offered Britain close ties after Brexit.  He said that the bloc was prepared to offer Britain a partnership, however, no “single market a la carte”.  With these remarks the FTSE slid on Wednesday under pressure from a bounce in the pound, underperforming the broadly positive European equity markets.  The FTSE has a sizeable chunk of its constituents earning revenues in dollars and hence the index tends to get under pressure from a stronger domestic currency. A stronger pound means that these companies do not benefit as much when they translate their revenues from dollars into sterling.   On Thursday the index continued to extend the previous session’s losses.  Only around 10 stocks were in positive territory and more cyclical sectors such as miners and financials were the biggest weight on the index, while dollar-earning stocks such as British American Tobacco, Reckitt Benckiser and Diageo fell 0.5 percent to 1.1 percent.

Eurozone’s Economic Sentiment

On Thursday, a monthly survey by the European Commission showed that Eurozone economic sentiment edged lower for an eight consecutive month in August, dragged down by less optimism in industry and services.  The commission survey showed the economic sentiment indicator for the 19 countries sharing the euro currency eased to 111.6 points in August from 112.1 in July continuing with a downward trend that started since a peak of 115.2 last December.  The survey last month suggested that the trade tensions between the EU and the US, that resulted in the US imposing tariffs on European steel and aluminium exports in June and the threat of more tariffs on EU cars, all had an impact.  The two countries have agreed to push for closer trade ties.  US tariffs remain on EU steel and aluminium although the threat for tariffs on EU cars has eased.  Sentiment in services that generate more than two thirds of Eurozone gross domestic product dipped to 14.7 from 15.3 in July, with worsening demand expectations.  Consumer sentiment also fell from -0.5 in July to -1.9.  Meanwhile, the mood among retailers and contractors improved.

Turkish Lira And The Deputy Governor’s Resignation

On Monday the lira slid with volatility rebounding ending a week of relative calmness as the Turkish markets opened after public holidays.  Against the lira, the dollar surged as much as 4.9 percent to 6.2974 with the Turkish currency extending losses.  One-month implied lira volatility a gauge of expected swings in the currency jumped to exceed 40 percent after dropping during holidays last week.  The slump in the currency has driven up the cost of fuel and food and increased concerns about the risk to the country’s banks and the broader economy. Meanwhile, Turkish central bank deputy governor and ratesetter Erkan Kilimci is leaving the bank.  This is three weeks before the bank’s monetary policy committee meets to address the fall in the lira.  After the news the lira touched 6.85.  According to document released by the bank, Kilimci is joining the board of the Development Bank of Turkey.

IMF Studying Argentina’s Request For Help After The Peso Crashes

The International Monetary Fund said it was studying a request from Argentina, to speed up the disbursement of a $50 billion loan program after a collapse in investor confidence in President Mauricio Macri’s government that sent the peso tumbling more than 7 percent on Wednesday. As part of the deal, the Argentinian government pledged to speed up plans to reduce the fiscal deficit.  It was the biggest decline for the peso since the currency was allowed to float in December 2015.     The peso closed to a record low of 34.10 per US dollar and is down more than 45.3 percent against the dollar this year.  This prompts massive central bank interventions.  The peso’s continued depreciation, makes the country’s dollar denominated debts more expensive to pay and investors are concerned that the help of the IMF may not be sufficient.  IMF’s Managing Director Christine Lagarde replied in a statement, that the multi-lateral lender’s staff would “re-examine the phasing of the financial program”.  She said that the “more adverse international market conditions” had not been “fully anticipated” when the IMF and Argentina reached the deal in June.  Lagarde further added that, “the authorities will be working to revise the government’s economic plan with a focus on better insulating Argentina from the recent shifts in global financial markets, including through stronger monetary and fiscal policies.” According to official data, Argentina has $24.9 billion in peso and foreign currency denominated.

Oil

Oil prices surged almost 2 percent on signs that sanctions on Iran may limit global supply and that a trade war may not curb China’s appetite for US crude.  Benchmark Brent crude oil settled up $1.09 at $75.82 while US crude gained 89 cents to settle at $68.72. On Wednesday, oil prices rose more than 1 percent with Brent at its highest in seven weeks and US crude touching a three-week peak. This was  supported by a drawdown in US crude and gasoline stocks and less Iranian crude shipments as US sanctions deter buyers.  Brent crude jumped 1.6 percent to settle at $77.14 after touching $77.41 its highest since July 11, while US oil increased by 1.4 percent at $69.51 a barrel after touching $69.75 which is the highest since 7 August.  Many crude buyers have reduced orders from Iran which is OPEC’s third-biggest producer ahead of 4^th November which is the start date for US Sanctions.

Malta:  Registered Unemployed – July 2018

In July (data provided by Jobsplus for July 2018) the number of persons registering for work stood at 1,828 decreasing by 26.9 per cent when compared to the same month in 2017.  The largest share of men and women on the unemployment register sought occupations as clerical and support workers with 19.5 per cent and 41.2 percent  respectively.

Malta:  Short-term Industrial Indicators – Q2/2018

Seasonally adjusted industrial turnover in the second quarter of 2018 increased by 1.7 percent over the previous quarter.  The growth in industrial turnover was due to an increase across the main industrial groupings primarily in the intermediate goods (3.6 percent) and the energy sector (2.3 percent).

Malta: Industrial Producer Price Indices – July 2018

During July 2018, the industrial producer price index registered an increase of 3.87 per cent when compared to the same month last year.   This was due to a rise of 10.18 per cent in the intermediate goods sector and 0.11 per cent in the capital goods sector.  A decline was registered in the consumer goods sector (0.51 per cent).  No price changes occurred in the energy sector.

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