“News From The FED, ECB and BOE…..”

News From The FED, ECB and BOE

The FED

The US Federal Reserve kept interest rates unchanged on Wednesday but said that economic growth has been rising strongly and the job market has continued to strengthen. Inflation has remained near the central bank’s 2 percent target since June. The decision of the FED left its benchmark overnight lending rate in a range of 1.75 percent to 2 percent.  The FED currently expects another two rate rises by the end of the year. Investors had ruled out a rise in interest rates this month, with sights set on next month and December.

The ECB

During this week’s governing council meeting of the ECB it was decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0%, 0.25% and -0.4% respectively. The governing council expects the key ECB interest rates to remain at their present level at least through the summer of 2019 and as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close the 2% target over the medium term. Furthermore, the Governing council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of EUR 30 billion until the end of September 2018. Subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to EUR 15 billion until the end of the December 2018 and net purchases will then end.

The Bank Of England

The Bank of England pushed interest rates above the financial crisis lows and were unanimous in their vote to raise rates to 0.75 from 0.5 percent. The BOE said that Britain’s economy while growing more slowly than in the past ahead of Brexit was operating at its speed limit or full capacity. Interest rate increases are to remain gradual and with limited increases as the central bank saw inflation only a fraction above the 2 percent target over the next few years. Since the referendum in 2016 about Brexit, the world’s fifth biggest economy has slowed down. According to the Bank of England the economy could be influenced significantly by the response of households, businesses and financial markets to news on Brexit. The bank continued to stress that Britain’s economy is at risk of too much inflation even with growth on the slow side.

Eurozone Economic Sentiment

Eurozone economic sentiment edged lower in July, due to less optimism in the industry and the retail sectors, despite a better mood in services according to a monthly survey by the European Commission. The economic sentiment indicator for the 19 countries eased to 112.1 in July (June 112.3). The commission’s business climate indicator, which helps identify the phase of the business cycle fell to 1.29 in July (June:  1.38). The easing of sentiment in July was mainly due to a fall in the indicator for the industry which decreased to 5.8 from 6.9, as managers were more pessimistic on production expectations, the current level of overall order books and stocks of finished products. According to the survey, the trade tensions between the European Union and the United States that resulted in the US imposing tariffs on European Steel and aluminium exports in June and the treat of more tariffs on EU cars, had their impact. Sentiment in services which generate more than two thirds of Eurozone gross domestic product, improved to 15.3 from 14.4 in June. The mood in the retail sector has fallen sharply as managers were worried over the expected business situation and the adequacy of the volume of stocks.

Trump Proposes More Tariffs On Chinese Imports 

The trump administration plans to propose a 25 percent tariff on $200 billion of imported Chinese goods after initially setting them at 10 percent. According to sources familiar with the plan, the move is a bid to pressure Beijing into making trade concessions. Goods subject to tariffs shall be food products, chemicals, steel and aluminium, consumer goods ranging from dog food to furniture and carpets. Although there is a period of public comment before the implementation of the 25 percent tariff trade, disputes could escalate in the meantime. The Chinese government did not react immediately. On Tuesday US stocks rose on a report that said the US and China were trying to restart negotiations to defuse the trade war between the two largest economies.

China’s Manufacturing Growth

Growth in China’s manufacturing sector slowed more than expected in July as bad weather, weaker domestic demand and a worsening trade dispute with Washington effected factory activity. The official Purchasing Manager’s Index (PMI) released on Tuesday fell to 51.2 in July (June: 51.5). It was also the lowest index reading since February but remained over the 50 level that separates growth from contraction for a 24^th straight month. Firms were also hit by trade frictions, rain and high temperatures in July and is also a cyclically slow season for some sectors according to statistics bureau official in a statement released with the data. The PMI’s July new export orders index remained in contraction in July remaining at the same reading of 49.8 of the previous month. This is a sign that trade conditions have not significantly worsened.

Oil

Oil prices fell on Tuesday to the largest decline in two years on supply worries after OPEC output reached a 2018 high in July. Oil prices extended their losses with US crude at $68.32 a barrel, after data from the American Petroleum Institute showed domestic crude inventories rose 5.6 million barrels last week. Russia and OPEC countries boosted output in July according to a Reuters productions survey. It showed OPEC members boosted output in July by 70,000 barrels per day to 32.64 million bpd a high for the year. OPEC pledged to offset the loss of supply from Iran, which is the group’s number three producer. Oil prices continued falling on Wednesday after industry data showed US stockpiles of crude unexpectedly rose and as economic growth especially in Asia amid the escalating disputes between China and the US.

Economic Slowdown

Markets are being negatively affected by concerns over slowing economic growth arising from trade disputes between the United States and China. Last month China and the United States applied tariffs on $34 billion of each other’s goods and more tariffs on $16 billion on Chinese goods is expected in August. Furthermore the trade war is to escalate as the Trump administration is proposing a 25 percent tariffs on $16 billion of imports up from an initial 10 percent. Manufacturing across Asia slowed in July on concerns about the region’s economic outlook and the conflicts between US and China has affected their trading partners. This is being shown in the container market in which the majority of finished goods are imported and exported. The Harpex container index has fallen by 10 percent from its 2011 highs in June to a last close of 613, its lowest level since March.

Currencies

A two day rate review that ended on Tuesday, the Bank of Japan kept its interest rate targets steady but for the first time adopted a forward guidance on future policy. The bank said it would allow long-term rates to fluctuate depending on economic and price developments and conduct bond purchases more flexibly. After the Bank’s of Japan move, German and French government bond yields dropped 3 to 4 basis points. The US dollar jumped against the yen on Tuesday after the news from Japan and the greenback was firm against a basket of peers ahead of the US Fed two-day monetary policy meeting that ended on Wednesday. On Tuesday data showed that US consumer spending increased solidly in June, while inflation climbed moderately. Other data showed employers boosting benefits of workers in the second quarter, but wage growth slowed. Meanwhile the British pound was little changed against the dollar as investors were preparing for the Bank of England’s monetary policy meeting later this week. On Thursday the pound extended losses after the Bank of England raised interest rates from the crises era lows but later gave way to the selling pressure and dropped to $1.3017 from around $1.31 before Governor Mark Carney gave his news conference.

Gold 

Gold steadied on Monday ahead of the meeting of the Federal Reserve that could give clues on the future direction of US interest rates, the dollar and key factors for precious metal prices. Spot gold was steady at $1,223.14 per ounce compared with a one-year low of $1,211.08 that hit earlier in the month. A higher US dollar currency makes dollar-denominated gold more expensive for holders of other currencies. Dollar gains since the middle of April have led to losses of about 10 percent for spot gold prices.

BP Q2 Profit

Higher oil prices and increased output boosted the second quarter profit to $2.8 billion, four times that of the previous year. The company has further confirmed it will increase its quarterly dividend for the first time in nearly four years to 10.25 cents per share. BP is gradually shaking off a $65 billion bill for penalties and clean-up costs of the deadly 2010 Deepwater Horizon spill.  First-half production rose to 3.662 million barrels of oil equivalent per day, including output at Rosneft, from 3.544 million barrels oil equivalent per day a year earlier. In its biggest deal in nearly 20 years, BP last week agreed to buy US shale oil and gas assets from global miner BHP Billiton for $10.5 billion, expanding the British oil major’s footprint in oilrich onshore basins. BP was also buying back shares to the tune of $200 million in the first half of this year. In the second quarter, it paid off $700 million for the spill on a post-taxis basis. Gearing declined to 27.8 percent at the end of the quarter from 28.1 percent at the end of March.

British Lloyds Bank

On Wednesday the Banking Group said its pre-tax profit for the first half of 2018 jumped by 23 percent to 3.1 billion pounds mainly in line with expectations despite a hefty provision for insurance mis-selling amounting to 460 million pounds. The bank laid out a fresh-three year strategy in February aiming to bolster its retail business against increasing competition from established rivals and upstart financial technology firms. The earnings of the Bank are exposed to Brexit, however according to company management it has seen few signs of any strains by Brexit on the economy.

Volkswagen

German carmaker Volkswagen posted a 23 percent rise in underlying quarterly operating profit on Wednesday, even though difficulties to conform to new anti-pollution rules could cloud sales outlook for passenger cars. A 5.5 percent rise in vehicle sales helped lift second-quarter operating profit before special items to 5.58 billion euros from 4.55 billion a year earlier. As VW said, earnings were however hit by a 1 billion euros fine for its diesel cheating and a further 600 million euros for legal expenses. Volkswagen shares were down 2.8 percent in early trade. In June VW warned that production up to 250,000 cars will be delayed as it struggles to adapt its vehicles to a new anti-pollution test.

Apple

Apple Inc became the first $1 trillion publicly listed US Company on Thursday, fuelled by its ambition from a niche player in personal computers into a global powerhouse of entertainment and communications. Since Tuesday, Apple’s stock rallied about 9 percent when it reported the June quarter results above expectations and also bought back $20 billion of its own shares. Apple Inc sales led by the pricey iphoneX pushed quarterly results with subscriptions from App Store, Apple Music and iCloud bolstering business. Apple posted third quarter revenue of $53.3 billion and profits of $2.34 per share compared to analyst estimates of $52.3 billion and $2.18 per share.

Malta:  S&P Banking Industry Risk Score

The quality of assets of the core domestic banks continued to improve, with non-performing loans falling to a historic low and below the euro area average. Meanwhile, S&P Global Ratings lowered the long-term issuer credit rating of Bank of Valletta while it reaffirmed the Bank’s short-term rating. The new long-term rating is ‘BBB’ while the short term rating is ‘A-2’. The outlook remains negative.  The negative outlook on BOV’s rating reflects the S&P view of the possible negative impact of legacy litigation cases on the Bank. S&P highlights BOV’s resilient profitability and improved asset quality ensures that the Bank will maintain adequate risk-adjusted capital in the medium-term.

Malta: Social Security Benefits and Tourism

Between January and June 2018, a EUR17.2 million increase was recorded in Social Security Benefits outlay in comparison to the same six-month period in 2017. On a different note total inbound visitors for June were estimated at 265,823, an increase of 14.5 percent when compared to the corresponding month in 2017.

‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’