“Summit In Singapore “

Summit In Singapore

US President Donald Trump and North Korean leader Kim Jong Un met in Singapore, pledging to work towards complete denuclearisation. The summit was the first between US president and North Korean leader following a number of North Korean nuclear and missile tests and angry exchanges between the two last year and concerns over fears of war. There were mixed reactions from the North Korea summit, which ended with the signing of a joint statement that gave few details on how the goals set by both sides could be achieved.  On his return from the summit in Singapore, President Donald Trump said that North Korea no longer poses a nuclear threat, nor is it the “biggest and most dangerous problem” for the United States. On Tuesday US President Donald Trump made a concession with North Korean leader about halting military exercises, pulling a surprise at a summit that baffled allies, military officials and lawmakers from his own Republican Party.   Trump said the United States would stop military exercises with South Korea while North Korea negotiated on denuclearisation.  Pyongyang’s Korean Central News Agency reported that Trump offered to lift economic sanctions on North Korea.  Some critics in the United States said that Trump has given away too much at a meeting that provided international standing to Kim.   If the halting of joint military exercises is implemented, it would be one of the most controversial moves coming out of the summit.  Mike Pompeo, US Secretary of State said that North Korea would not receive sanctions relief until the country had completed nuclear disarmament, pushing back against suggestions in official North Korean Media that the economic pressure on the country would soon ease.

US Inflation

US inflation accelerated in May to the fastest pace in more than six years.  On Tuesday, a Labour Department report showed the consumer price index rose 0.2 percent from the previous month and 2.8 percent from a year earlier, matching the estimates.  The pickup in the headline inflation is partly attributed to gains in fuel prices.   The data reinforced the Federal Reserve outlook for gradual interest-rate hikes.   A separate Labour Department report on Tuesday illustrated how higher prices are effecting wallets, as the average hourly wages, adjusted for inflation, where unchanged in May from a year earlier.  Nominal pay accelerated to a 2.7 percent annual gain from 2.6 percent in April.  Seasonally adjusted gasoline prices rose 1.7 percent in May from the previous month after a 3 percent gain in April.

FED Raises Interest Rates

In a move that was widely expected, the Federal Reserve raised interest rates on Wednesday by 25 basis points raising the benchmark overnight lending rate a quarter of a percentage point to a range of 1.75 percent to 2 percent.  According to Fed Chairman Jerome Powell “the economy is doing very well”.  The ongoing economic expansion coupled with solid job growth has pushed the Fed to raise rates seven times since late 2015. It ended up its pledge to keep rates low enough to bolster the economy for “some time” and signalled it would tolerate above-target inflation at least through 2020.   The unemployment rate in the US currently is at an 18-year low of 3.8 percent and is expected to fall to 3.6 percent this year compared to the 3.8 percent that the Fed had projected in March.    After the announcement US Treasury yields rose while US stocks were trading marginally lower and closed down on the day.  Powell also announced that the central bank next year would start holding news conferences after every policy meeting.  Currently the Fed chief holds four such events each year, which means a total of eight in 2019.

Scheduled Meeting On Activation Of China Tariffs

US President Donald Trump will meet with his top trade advisers on Thursday to decide whether to activate threatened tariffs on billions of dollars in Chinese goods.  Trump is due to unveil revisions to his initial list of tariff targeting $50 billion of Chinese goods on Friday.  The move towards activating US tariffs on Chinese goods follows negotiations between US and Chinese officials centred on increased purchases by Beijing of American farm and energy commodities and cutting the US trade deficit with China.

European Data

On the eve of the European Central Bank meeting on Thursday, industrial production data joined some underwhelming economic data.  Output fell in April by 0.9 percent dragged down by a plunge in energy, as stated by Eurostat on Wednesday.  Production fell in Europe’s four biggest economies.  As numbers have defied expectations, suggesting Europe’s economic growth is not likely to match last year’s rapid pace of expansion and might even slow down. Furthermore, other factors focus on uncertainties ranging from Italian politics to trade tensions that intensified during a G7 meeting over the weekend.    Meanwhile, companies are stepping up their investment to meet increased demand, and output of capital goods surged 1.9 percent in April which is the most in five months.  A separate report showed that employment jumped 0.4 percent in the first quarter.  Euro-area inflation accelerated more than expected last month to a level which is in line with the ECB’s goal of below but close to 2 percent.  Although energy was the main reason for the increase, economists see underlying cost pressures increasing as well.  IHS market that compiles gauges for manufacturing activity, also noted increases in the backlog of work and higher input costs.

ECB

The European Central Bank said on Thursday that it will end its unprecedented bond purchase scheme by the close of the year.  Signalling that the move will not mean rapid policy tightening in the coming months, the bank also said that interest rates would stay at record lows at least through the summer of 2019.  Inflation has remained weak, whilst increasingly evident wage pressures and record employment suggest that prices will be moving up in the coming years, even though at a slower pace than the ECB had originally planned.     Concluding the bond purchases by year-end indicates that interest rates will once again become the bank’s primary policy tool.

Italy

Italian Finance Minister Giovanni Tria said in a newspaper interview that there was no discussion about his country leaving the EUR and also said that the government will block any market conditions that would “push toward an exit”.  With this reassurance Italian stocks and bonds rallied this morning with the yield on the two-year government debt falling more than 50 basis points and the FTSE MIB Index gaining more than 2 percent.  Meanwhile just as the new government is trying to reassure investors about the country’s outlook, Italian industrial production declined far more than expected in April, adding to signs of a slowdown in economic growth.  On Monday, Istat the national statistics office said that output decreased 1.2 percent from March, when it rose 1.2 percent.  Furthermore, Istat said that in the first quarter of 2018, the Italian economy recorded a slight deceleration, arising from lower investments and less net foreign demand.  Italy’s economy expanded 1.5 percent last year, the most since 2010.  The forecast for this year is the same as last year, which would make Italy the slowest-growing country amongst the 19 nation state according to the European Union.   Investors are wary about the outlook of Italy’s public finances amid the plans by the new government to cut taxes and increase spending.  The national debt is more than 130 percent of gross domestic product.

UK- Theresa May Wins Brexit Vote

May had faced a showdown with lawmakers who wanted to force her government to go back to the negotiating table if they reject a Brexit deal, testing her plans for leaving the European Union.  However, Theresa May won a vote in parliament yesterday, by winning over pro-European Union rebels in her party with a compromise on plans to give parliament a meaningful vote later this year on the terms of Britain exiting from the EU.  After a closely watched debate, lawmakers voted 324 to 298 to accept a proposal saying that if parliament rejects the final Brexit deal, a government minister will set out how the government plans to proceed within 28 days.

UK – Manufacturing

The UK economy is looking weaker than expected. The pound fell on Monday after a report showed that manufacturing output shrank the most in 5 ½ years in April.  Furthermore,  gains in construction were weak.    This is lowering the likelihood of the Bank of England raising interest rates again in the near future.  The British economy slowed sharply last year even though the rest of the world has picked up.  A major contributing factor to this was the Brexit vote that left consumers facing higher inflation and companies becoming more cautious over investment.  In 2018, the situation has worsened, however the Bank of England (BOE) attributed the slump to the cold weather.  The figures reported on Monday did little to support the comments by BOE Deputy Governor Dave Ramsden who said data until that point suggested the economy’s weak start to 2018 would probably prove temporary.  According to the Office of National Statistics, manufacturing output dropped by 1.4 percent in April after a 0.1 percent decline in March, the biggest month-on-month fall since October 2012.  The weak data in the UK was in parallel with the disappointing data from the Eurozone after a strong growth at the end of 2017.

Currencies

Sterling slipped to a one week low on Wednesday as the consumer price inflation held at an annual rate of 2.4 percent in May, the lowest since March 2017, according to the Office for National Statistics.  However, the data did not do much to shake market expectations of an interest rate hike over the course of the year.  Money markets are currently pricing in a 43 percent chance of a 25 basis point hike in August and one rate hike by end 2018.   Sterling fell back towards to the $1.3322, its lowest levels since 5^th June.  Since sterling climbed to an overnight high of $1.3424 after Prime Minister Theresa May saw off a rebellion in parliament over amendments to a bill for Brexit, Sterling weakened nearly 1 percent.  Meanwhile, on Wednesday the US dollar edged up against the euro and hit a three week high versus the yen on Wednesday ahead of a Federal Reserve policy announcement to which investors looking for clues for any rate hikes this year.  Investors were focusing on whether  the Fed would tighten the policy four times in 2018 versus the three times originally indicated in the beginning of the year as the US economy expanded steadily.  In Europe, during the week there was speculation that the ECB could signal its intention to unwind its massive bond purchasing program.  The Dollar traded flat versus the Euro at $1.1745.  On speculation that the ECB could give an indication of its intention to unwind its massive bond purchasing program in 2018 lifted the euro to a three-week high of $1.1840 last week.

Bitcoin

In a statement on its website the South Korean cryptocurrency exchange Coinrail was hit by “cyber intrusion” on Sunday causing a loss for about 30 percent of the coins traded on the exchange.  The incident sent the price of the bitcoin tumbling to a two-month low over concerns about the security at virtual currency exchanges.  It once again highlighted the security risks and the weak regulation of the global crypto currency markets.  South Korea is one of the world’s major cryptocurrency trading centres and home to one of the most heavily trafficked virtual coin exchanges Bithumb.  On the Luxembourg-based Bitstamp, bitcoin was last trading at $6,790.88 down by 10.8 percent from Friday.  It has fallen roughly 65 percent from its all-time peak around mid-December 2017.

Oil

Oil prices rose on Tuesday along global markets on the premise that the summit between Donald Trump and Kim Jong Un made a lot of progress boosting hopes of a deal to end a nuclear standoff on the Korean peninsula.  Brent crude traded at $76.72 a barrel up 26 cents whilst US West Texas Intermediate crude futures were at $66.42 a barrel up 32 cents.  Oil prices were also supported by healthy demand and voluntary production cuts led by OPEC, besides the Summit held in Singapore.  As the output from the three biggest producers Russia, United States and Saudi Arabia are on the rise some oil market fundamentals indicate lower prices.  In the US, output has risen by almost a third in the last two years, to a record of 10.8 million bpd.  Meanwhile, Saudi Arabia which is the top exporter, has so far led OPEC’s efforts to withhold supplies, showing signs of raising production.  The International Energy Agency said in its first detailed forecast for 2019 that OPEC members, Iran and Venezuela, could lose almost 30 percent of their oil output next year, due to US sanctions and economic upheaval.   The report is said to increase pressure on a meeting of OPEC and its allies next week to allow increases in output.

Malta – International Trade

Preliminary figures show that Malta registered a trade surplus of EUR 157.3 million in April 2018, compared to a trade deficit of EUR 222.1 million in the corresponding month of 2017.  This surplus was due to an increase in exports in the ships, boats and floating structures commodity group.  Imports decreased by EUR 56.5 million, while exports show an increase of EUR 322.9 million.  The decrease in the value of imports was primarily due to machinery and transport equipment with the same group accounting for the main increase in exports.

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