“OPEC Extends Oil Cut…”

OPEC Extends Oil Cut

OPEC agreed on Monday to extend oil supply cuts till March of next year, in order to support the price of crude amid the weakening global economy and the increasing US production.  OPEC and its allies have been reducing oil output since 2017 to prevent prices from dipping due to increases from US production which has taken over Russia and Saudi Arabia.  The US is not an OPEC member and is not participating in the supply act.  An increase in oil prices could lead to more expensive gasoline, which is a key issue for Trump, as he seeks re-election next year.  The extension agreed on Monday, will likely anger US President Donald Trump who has demanded Saudi Arabia to supply more oil and help reduce prices if Riyadh wants US military support its stand off with Iran.  Meanwhile, OPEC prices fell more than 4 percent on Tuesday, after the agreement which was reached by OPEC members and its allies.

US And China Trade Talks

Stocks rallied globally after the US postponed imposing the round of tariffs on Chinese products whilst the two countries agreed to continue negotiations on trade.  Trump said he would hold back on new tariffs and that China will buy more farm products.  He also offered to ease restrictions on tech company Huawei.  Global stocks jumped, and investors dumped safe-haven assets.    US President Trump however said on Monday that any trade deal with China would need to be “somewhat tilted” in favour of the US.

EU In Talks With The US

On Monday, days after reaching a truce in the US-China trade war, the US government has put pressure on Europe in a long-term dispute over aircraft subsidies, and threatened tariffs on $4 billion of additional EU goods in addition to the products worth $21 billion announced in April.  Amongst the additional products that could be hit with tariffs are olives, Italian cheese and Scotch Whiskey.

Head Of European Central Bank

The European Union leaders agreed to name Christine Lagarde as the new head of the European Central Bank.  The appointment of Christine Lagarde at the helm of the ECB has reinforced expectations for easier monetary policy going forward. Once approved by the European Parliament Lagarde would succeed Draghi as his term expires at the end of October.  With the news, government bond yields in most of the eurozone, fell to record lows on Wednesday.  Ten-year old bond yields across the bloc fell 1-3 basis points in early trade.  Germany’s 10-year bond yield hit a new record low of minus 0.39 percent, while French 10-year bond yields hit a new low of minus 0.079 percent.

European Commission President

On Thursday European Council President Donald Tusk asked the European Parliament to approve German Defense Minister Ursula Von Der Leyen as the next head of the European Commission.   “For the first time, we achieved perfect gender balance in the top positions.  Europe is not only talking about women, it is choosing women,” Tusk told the assembly, which will vote on Ursula Von Der Leyen in mid-July.

Eurozone Business Activity

Eurozone Business Activity picked up slightly last month but remained weak as a modest upturn in the services industry offset a continued deep downturn in factory output, according to a survey.  The IHS Markit’s Eurozone Composite Final Purchasing Manager’s Index (PMI) increased to 52.2 in June from 51.8 in May, remaining close to the 50-mark separating growth from contraction.  The upturn was evident throughout much of the eurozone and earlier figures from Germany, France and Spain showed services activity accelerated.  The robust German, French and Spanish readings helped a PMI covering the wider eurozone services industry to bounce to 53.6 from 52.9 in May.

Italy’s And EU Sanction Threat Over Its Debt

The European Commission dropped its threat of disciplinary action against Italy on Wednesday as Rome took action to bring debt in line with the EU’s fiscal rules.   The Commission also urged Italy to respect its commitment to prepare a 2020 budget in line with EU fiscal rules to avoid further uncertainty.  This Budget is to be submitted to the Commission by the 15th October.  Rome has announced new six-month data showing the projected 2019 deficit will be some  Euros 7 billion less than targeted in April, thanks to lower-than-expected spending and higher revenues.  The EU executive said Italy is expected to be broadly compliant with the EU’s stability and growth pact this year.  Furthermore, the government had also made additional efforts this year to partially offset the deterioration in the 2018 structural balance. The EU executive is willing to examine all information from Italy over its public finances before taking a final decision, said the European Economic Affairs Commissioner Pierre Moscovici in a new conference.

Australia’s Central Bank

Australia’s Central Bank has cut interest rates for the second time as it strives to boost a sluggish economy and reduce unemployment.  The Reserve Bank of Australia took the quarter rate cut to an all time low of just 1 percent and left little room for more reductions, raising the possibility of unconventional policy easing.

US Manufacturing Stumbles In June

US manufacturing activity slowed to near a three year low in June, with the measure of new orders received by factories tumbled amid the growing tensions from the United States and China.  Other data on Monday showed construction spending unexpectedly fell in May as investment in private construction projects dropped to its lowest level in nearly 2 ½ years.  The reports were the latest indications that economic growth slowed in the second quarter after getting a temporary boost from exports and an accumulation of inventory.  The Institute for Supply Management (ISM) said its index of national factory activity dropped to 51.7 last month, the lowest reading since October 2016 from 52.1 in May.  It was the third straight monthly decline in the index.  A reading above 50 indicates an expansion in the manufacturing sector, which accounts for about 12 percent of the US economy.

US Trade Deficit At Five Month High

The US trade deficit jumped to a five-month high in May as the trade tensions between the US and China drove activity in the services sector to a two-year low in June. Trade deficit rose 8.4 percent to $55.5 billion as the surge in imports overshadowed a broad increase in exports, said the Commerce Department.  This indicates further that economic growth slowed sharply in the second quarter.   New orders for manufactured goods dropped in May for a second straight month.  The reports followed recent weak housing and business investment data, as well as moderate consumer spending as business and consumer confidence dipped.  Meanwhile other data on Wednesday showed that private employers added far fewer-than-expected jobs to their payrolls last month.  The economic activity slowdown which follows from last year’s massive stimulus from tax cuts, could prompt the Federal Reserve to cut interest rates this month.  The goods trade deficit with China, on which attention is drawn by President Donald Trump’s America First agenda, increased 12.2 percent to $30.2 billion.  According to economists, the expectation of additional duties has likely boosted imports from China, which jumped 12.8 percent in May.

Gold Prices

Gold prices climbed higher on Tuesday after a steep fall in the previous session as investors got anxious about an economic slowdown amid global manufacturing data and the US and European trade reactions.  Spot gold was up 0.5 percent at $1,391.07 per ounce after falling 1.8 percent in the previous session, its biggest one-day percentage decline since November 2016.  The increase in gold was capped by a strong dollar, which was buoyed by the agreement between the US and China to resume talks.

Markets Wrap

Global stocks rallied on Monday, with the STOXX 50 index hitting its highest level since February 2018, after the United States and China restarted trade negotiations over the weekend.  European shares retreated on Tuesday from two-month highs that hit the previous session amid the US-China trade talks as the latest tariff threats by Washington on $4 billion of additional EU goods held back market gains.  Other news that left an impact was data showing manufacturing activity slowed last month, weakening the appetite for risk.  US Treasury yields fell on Wednesday with the 10-year yields hitting their lowest in over 2 ½ years as the euro zone yields tumbled on record lows on bets the ECB’ next chief would keep a dovish stance to help the eurozone economy.  Benchmark 10-year Treasury yields were down 2.4 basis points at 1.953 percent.  They touched 1.939 percent earlier which was the lowest since November 2016, as the 10-year bund yields reached a record low at -0.399 percent.  US 30-year yields also fell to 2.465 percent which was the lowest since October 2016.  On Wednesday the S&P 500 index hit a record high at the open boosted by healthcare stocks.  The Dow Jones Industrial Average rose at the open to 26,832.32.

Currency Roundup

The dollar advanced to a 2-week high on Monday after the US and China agreed to restart their trade talks.  Meanwhile investors sold safe-haven currencies such as the Japanese Yen and the Swiss Franc as tensions eased.  Sterling slipped to a two-week low against the dollar on Tuesday, amid uncertainty over Britain’s next minister’s priorities for running the country and the poor economic data that is prompting bets on lower interest rates.  The dollar also gained after data showed the US manufacturing activity index, as measured by the Institute for Supply Management, came in slightly higher than expected in June to 51.7.   The yuan fell on Tuesday giving up gains from the rally after the US-China trade talks over the weekend, as traders turned focus to negotiations back to economic fundamentals and seasonal factors.  Meanwhile the Turkish lira jumped 1.8% after President Tayyip Erdogan said he had heard from Trump there would be no sanctions over Turkey’s purchase of Russian S-400 defence systems.  In East Europe, the Czech crown and the Polish zloty weakened against the euro, while the Hungarian forint held on the gains.  On Thursday the euro was stuck near two-week lows and the dollar moved away from recent highs amid sliding government bond yields.  The euro weakened since IMF Managing Director Christine Lagarde, who is perceived as a policy dove, was nominated as the next European Central Bank president.   The dollar has weakened in recent weeks as expectations build for a cut in interest rates by the Federal Reserve later this month.

Malta:  Index of Industrial Production May 2019

In May 2019, the seasonally adjusted index of industrial production increased by 1.3 percent over the previous month.  Increases were registered in the production of energy (4.5 percent), consumer goods (2.3 percent) and intermediate goods (1.8 percent).  Meanwhile, the production of capital goods decreased by 1.5 percent.  When compared to May 2018, the working-day adjusted index of industrial production decreased by 4.9 per cent.  Decreases were registered in the production of consumer goods (10.9 per cent), intermediate goods (2 percent) and capital goods (1.4 per cent).  Energy production went up by 2.2 percent.

Antonella Mercieca

Client Relationship Manager


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


July 5th, 2019

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