“The Debate …”

The Debate

Prime Minister Boris Johnson shook hands with his rival, opposition Labour leader Jeremy Corbyn, during a live television debate on Tuesday.  Both men agreed to improve the tone of Britain’s political debate.  Johnson doubled down on his Brexit promises on Tuesday, saying only he could take Britain out of the EU quickly.  Both leaders tried to undermine the other in the first debate before 12 December election.  “We certainly will come out on 31st January because we have a deal ….that is oven ready, “ said Johnson, reinforcing a message he has used throughout the election campaign that his Conservative government would end the Brexit crisis quickly.  Johnson is promising to implement the exit deal he negotiated with Brussels and lead Britain out of the EU by 31 January.  He also pledged to meet the 2020 deadline to secure a trade agreement for a long-term relationship with the EU.  Johnson also took aim at Corbyn, stating his promise of a second referendum would only prolong Britain’s departure from the EU.  When Johnson prodded the opposition leader to say whether his party would campaign to stay in the bloc or to leave at a new vote, Corbyn said he would honour the decision of the people.  Corbyn spoke of his plan to hold a new referendum in six months.  Corbyn further added that instead of speed, Johnson was promising years of more talks to secure a trade deal not only with the EU but also with the US.  He accused the government of planning to “sell off” Britain’s beloved public health service.  Meanwhile Johnson denied the charge.  Corbyn said, “the idea that the Prime Minister Boris Johnson’s deal, can be dealt with and finished by the end of January is such non-sense.”  Meanwhile, British Prime Minister Boris Johnson said on Monday he was putting on hold further cuts in corporation tax and told voters he would pump the money into services such as health instead, addressing a central issue in the 12 December election.

Christine Lagarde’s Speech

On Friday the new European Central Bank President Christine Lagarde said, the eurozone needs to create more of its economic growth at home, including via greater public investment, if it is to withstand weakness abroad and become more balanced internally. She chose to send a message to euro zone governments calling on them to strengthen domestic demand after a global trade war brought a decade of export-driven growth mainly led by Germany, to an abrupt end.  Lagarde said, “The answer lies in converting the world’s second largest economy into one that is open to the world but confident in itself, an economy that makes full use of Europe’s potential to unleash higher rates of domestic demand and long-term growth,” said Lagarde.  She singled out public investment as the key driver of this rebalancing calling on pan-European funds to be invested in green and digital projects.   In her only policy-related remarks, Lagarde confirmed she would “soon” start a review of the ECB’s policy framework.  It is a wide-ranging effort that is expected to involve a redesign of its inflation aim.  She stuck to the central bank’s pledge to keep the money taps open while monitoring the side effects of its stimulus policies.

German Manufacturing Output

Germany’s manufacturing production is expected to decline 4 percent this year, with exports edging up for just half a percentage point because of weaker foreign demand, said the BDI association on Tuesday. Manufacturers which are export-reliant are being hit by the trade disputes, Brexit and China’s cooling economy.

The BDI expects global industrial output to rise only 1 percent this year after two years with annual growth rates of 3 percent.  The projected export growth of 0.5 percent follows a 2.1 percent expansion the year before, marking the weakest rise in foreign sales.  The 4 percent drop in manufacturing output expected for 2019 compares with BDI’s initial forecast for stagnation.

Eurozone October Inflation

Eurozone’s headline inflation slowed in October, said on Friday the European Union statistics office, confirming its earlier estimate as energy prices fell.  Eurostat said that the 19-country bloc posted in September a larger surplus in its trade with the rest of the world, as exports grew more than imports.  Inflation was confirmed at 0.7 percent on the year, down from 0.8 percent in September, in line with preliminary estimates that were issued on 31st October by Eurostat.  The slowdown was caused by a 3.1 percent in energy prices, which more than offset the 1.5 percent inflation recorded in services and for food, alcohol and tobacco products.  The narrower inflation indicator that strips out volatile energy and unprocessed food prices and which is monitored closed by the ECB was confirmed at 1.2 percent unchanged from September.    In a separate release, Eurostat said the bloc’s trade surplus expanded to 18.7 billion euros ($20.6 billion) in September, up from 12.6 billion recorded in September 2018.  Despite the tensions from the trade war, the block increased by 5.2 percent its export of goods to the rest of the world in September compared to the previous year, more than offsetting a 2.1 percent rise in imports.

OECD About Global Growth

The global economy is growing at the slowest pace since the financial crisis as governments leave it to central banks to revive investment, said the OECD on Thursday in an update of its forecasts.  In its Economic Outlook for the Organisation for Economic Cooperation and Development, the world economy is projected to grow by a decade low 2.9 percent this year and next.  The Paris-based policy forum forecast growth would edge up to 3 percent in 2021, if certain risks are contained such as trade wars and unexpectedly sharp Chinese slowdown.  

Chinese Companies

According to analysts the top 200 Chinese companies ranging from consumer, technology, industrial, property and financial industries reported September quarter earnings well ahead of market expectations, setting them for a strong showing next year.  These companies beat the lowered market expectations as consumer spending remained strong, amid a boot from Chinese shoppers who opted to buy at home rather than to travel abroad.  The weaker yuan increased the cost of travelling.  Profits at Chinese companies grew 10 percent in the July-September period, beating the 2 percent growth rate that analysts had predicted and ahead of China’s slowing economic growth rate.

China Lowers Its Lending Benchmark

On Wednesday China lowered its lending benchmark rate to reduce company funding costs and support an economy that is hurt by slowing demand and US trade tariffs.  The cut came a day after central bank governor Yi Gang said Beijing would step up credit support and lower real lending rates as pressure on the world’s second-largest economy increases.  China has slowly engaged in policy easing in recent weeks, and authorities are pushing banks to support small and medium sized businesses.  The one-year LPR a rate set by the People’s Bank of China (PBOC) based on quotes from a panel of banks, fell five basis points to 4.15 percent from 4.20 percent in October.  The five-year LPR was lowered by the same margin to 4.8 percent from 4.85 percent.  The one-year LPR has now been reduced three times since it became the official lending benchmark in August, and this week’s cut suggests that the PBOC wants to lower financing costs across the curve despite pressures on inflation from the rising pork prices amid an outbreak of African Swine Fever.  China has pledged not to engage in massive stimulus as it did in the past, and has engaged on higher infrastructure spending, tax cuts and frequent liquid injections to support the economy from a slowdown.

US Labour Market

The number of Americans filing applications for unemployment benefits was unexpectedly unchanged at a five-month high last week, suggesting some softening in the labour market.  Meanwhile, other data on Thursday showed a mild pick up in factory activity in the mid-Atlantic region this month, however, manufacturers reported a sharp slowdown in new orders, shipments and unfilled orders.  There were also declines in factory employment and hours measures.  According to the Labour Department initial claims for state unemployment benefits were flat at a seasonally adjusted 227,000 for the week ended 16th November, the highest level since 22 June.  The Minutes of the 29-30 FED policy meeting published on Wednesday showed that while officials at the US central bank viewed labour market conditions as remaining strong.  They also acknowledged the slowdown in the pace of job gains.  Manufacturing accounts for 11 percent of the economy, and issues with this sector have persisted in the fourth quarter, despite the ebb in the trade tensions between US and China.  Manufacturing is being undercut by an inventory overhand, in particular in the automobile sector, design problems at Boeing and slowing global growth.

Trade Talks

The prospects for progress on trade dimmed when China condemned a US Senate measure on Hong Kong, vowing to take the steps necessary to safeguard its sovereignty and security. The Senate unanimously passed legislation aimed at protecting human rights in Hong Kong.  Late on Tuesday US President Donald Trump had threatened to raise tariffs further if China would not agree to a deal that he liked.  China’s commerce ministry said this month that removing tariffs imposed during the trade war is an important condition to any deal.  The demand has US officials wondering if higher Chinese purchases of US farm goods, promises of improved access to China’s financial services industry and pledges to protect intellectual property are enough to ask in return.  Beijing is balking at committing to a specific amount of farm product purchases, within a particular time frame, and wants to let supply and demand dictate deals instead.  Beijing wants Trump to eliminate the 15 percent tariffs on about $125 billion worth of Chinese goods imposed on 1 September as well as provide some relief from the 25 percent tariffs imposed on an earlier, $250 billion list of industrial and consumer goods.  According to White House Advisors, Trump is the final decision-maker in the US on any deal and hasn’t committed to any specifics so far. US President Donald Trump is expected to sign two bills passed by Congress intended to support protestors in Hong Kong.  This followed a Reuters report that completion of a “phase one” US-China trade deal could slide into next year.  The next round of US tariffs on Chinese goods takes effect on 15 December.

FED Minutes

In the minutes of last month’s meeting the FED was in no hurry to reassess the path of interest rates.  The minutes released on Wednesday of the 29-30 October policy discussion at which the Fed voted 8-2 to lower US interest rates by a quarter percentage point, also showed that policymakers further discussed the possibility of setting up a standing repo facility in the wake of recent stresses in short-term money markets.  The FED minutes said, “most participants judged that the stance of policy, after a 25-basis point reduction at this meeting, would be well calibrated to support the outlook of moderate growth, a strong labour market and inflation near the committee’s symmetric 2 percent objective”, the FED said in the minutes.  US financial markets were little changed following the release of the minutes as investors focused on the elusive US-China trade deal.  The FED has one more interest rate setting meeting before the end of the year, on 10th-11th Dec but investors now see the FED keeping interest rates unchanged until at least mid-2020.

Japan Lower House Passes US Trade Deal

Japan’s lower house of parliament approved on Tuesday a limited trade deal which Prime Minister Shinzo Abe agreed with the US clearing the way for tariff cuts next year on items including US farm goods and Japanese machine tools.  There is uncertainty however into how much progress Japan can make in negotiating the elimination of US tariffs on its cars and car parts, causing doubt on Abe’s assurances the deal he signed with US President Donald Trump was “win-win”.   The government’s proposal to ratify the trade deal will next be brought to the upper house for a vote but its passage in the powerful lower houses increases the chances it will come into force in January.  Japan estimated that the initial deal will boost its economy by about 0.8 percent over the next 10-20 years, when the benefits fully kick in.  It also estimated that 212.8 billion yen of overall tariffs on Japan’s exports to the US will be reduced.  The figures were based on the assumption that the US would eliminate its tariffs on Japanese autos and auto parts which is a major sticking point.

Markets Wrap

Asian shares on Monday ticked higher after Beijing surprised markets by cutting a key interest rate for the first time since 2015.  The news helped Shanghai blue chips recoup early losses to rise 0.8 percent though the initial reaction was cautious overall.  Tuesday saw eurozone bond yields rising slightly, while world shares touched their highest in nearly two years amid rising expectations among investors that the US and China eventually will secure a trade deal.  On Wednesday British government bonds fell to their lowest in more than two weeks after US President Donald Trump said the US would raise tariffs on Chinese imports if no trade deal is reached with Beijing.  The comments by Trump set the tone for world markets, with the US Treasury yields also falling while stock markets weakened.  US Treasury yields also fell to a 2 ½ week low around 1.74 percent.  Meanwhile in Europe Italian bond yields in particular rose sharply late on Tuesday as stock markets weakened.  There was some focus on a 30-year bond auction later in the session, which analysts expected to go smoothly as it is the final 30-year bond sale of the year and yields have risen in recent weeks.  A sell-off in bond markets over the past two months has pushed 30-year German bond yields back above 0 percent, although the rest of the curve remains in negative yield territory.  Meanwhile, Asian shares lost out to safe-harbour bonds on Wednesday as Sino-US trade talks produced nothing.  Market sentiment was dull with the MSCI broadest index of Asia-Pacific shares outside Japan off 0.7 percent, Japan’s Nikkei fell 0.8 percent and Shanghai blue chips 0.5 percent.  On Thursday European shares slid after US legislation on Hong Kong fuelled more worries that a “phase one” trade-deal between Washington and Beijing would not materialise any time soon.  As the standoff between the two largest economies continued, the odds of a “phase -one” deal this year, forced investors to seek safe-haven assets.  European shares extended their losses from Wednesday with the pan-European STOXX 600 and the German DAX both sliding 0.7 percent to fresh two-week lows.  The MSCI broadest index of Asia-Pacific shares outside Japan fell 1.1 percent to a near three-week lows whilst Hong Kong’s Hang Seng tumbled   European subsectors were deep in the red, with miners, technology and oil & gas companies, which are most exposed to global trade tensions, dipped about 1 percent each.  Thursday saw US stocks opening flat after mixed signals on trade and a row between Washington and Beijing over the Hong Kong protests that cast doubts on the timing of a deal to end the prolonged trade dispute.

Currency Roundup

The dollar was little changed against its main peers on Monday and remained in its recent trading range.  The dollar edged up on the safe-haven yen to 108.81 yen after bouncing on Friday. Meanwhile, the sterling nudged up to $1.2926 as more polls whoed that the Tories (member or supporter of the Conservative Party) were well ahead in their election race.   The dollar and the safe-haven yen edged higher on Wednesday but not by a lot as a lack of clarity on US-China trade talks kept investors cautious.  The euro stood at $1.1063 having found support at $1.0987 last week.  After falling overnight, the greenback rose 0.2 percent on the Australian dollar to $0.6818 whilst added 0.1 percent on the New Zealand dollar to $0.6419.  Against the euro the dollar was marginally higher at $1.1074 and a fraction stronger against a basket of currencies.


Oil dropped on Tuesday to a $62 amid the limited progress in the efforts to resolve the US-China trade war, the higher than expected Norwegian oil output and forecasts of rising US crude inventories.  The long-standing dispute has hit economic growth prospects and clouded the outlook on oil demand.  Figures from the American Petroleum Institute on Tuesday showed a far larger rise in crude stocks than expected.  That followed reports that Russia was unlikely to deepen its cuts crude output.  On Wednesday concerns about a supply glut left oil prices falling to their biggest one-day loss in seven weeks.  Meanwhile, on Friday the International Energy Agency said that OPEC (the Organisation of the Petroleum Exporting Countries) and its allies are facing stiffening competition in 2020, adding urgency to the oil producer group’s policy meeting next month.   The Paris-based agency in its monthly report said “OPEC + countries face a major challenge in 2020 as demand for their crude is expected to fall sharply.”   On Wednesday Russian President Vladimir Putin said that Russia and OPEC had a ‘common goal’ of keeping the oil market balanced and predictable and Moscow would continue cooperating under a global deal cutting oil supply.  Oil prices rose on Thursday after a Reuter’s report showed OPEC and its allies are likely to extend output cuts until mid-2020, while fresh reports emerged that China has invited US negotiators for a new round of talks.

Malta:  Registered Unemployment – October 2019

In October the number of persons registering for work stood at 1,666 decreasing by 6.9 percent when compared to the corresponding month in 2018.  The largest share of male and females on the unemployment register sought occupations as clerical support workers with 19.1 percent and 38.4 percent respectively.

Antonella Mercieca

Client Relationship Manager


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


November 22nd, 2019

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