“The Latest From China…”

The Latest From China

China on Monday let the yuan tumble beyond the 7-per dollar for the first time in more than a decade.  Weakness in the official guidance rate came after heavy losses in the spot yuan as the tensions over the trade war between the US and China spread to foreign exchange policy.  Furthermore, the 1.4 percent drop in the yuan came days after US President Donald Trump surprised financial markets by stating he would impose 10 percent tariffs on the remaining $300 billion of Chinese imports from 1 September breaking a brief trade truce.  Meanwhile, Washington on Monday tagged China as a currency manipulator.

China’s exports unexpectedly returned to growth in July amid improved global demand despite escalating US trade pressure.  Data from customs showed that July exports in China rose 3.3 percent from a year earlier, the fastest since March.  Meanwhile, imports remained weak declining 5.6 percent and highlighting sluggish domestic demand as the Chinese economy struggles to find firm footing.  While China’s exports to the US continued to drop in July amid more tough tariffs, shipments picked up to Europe, South Korea, and Taiwan.  China’s exporters and their US customers have been affected by the recent months of uncertainty, with the fallout spreading through global suppliers from Germany to Singapore.

China’s factory gate prices (the price of finished goods sold by manufacturers to retailers or distributors) shrank for the first time in three years in July, encouraging deflation worries and adding more pressure on Beijing to deliver more stimulus to boost the economy amid the trade war with the US.  As domestic and global demand slowed, Chinese manufacturers are cutting prices to keep up with market share.  In turn, this is having a negative impact on profit margins and discouraging new investment.  Meanwhile, falling prices for crude oil, iron ore and other raw materials are also playing a part.   According to the National Bureau of Statistics (NBS), China’s producer price index (PPI) fell 0.3 percent from a year earlier in July.  PPI is one gauge of corporate profitability.  This was the first contraction on an annual basis since August 2016, though the index have now dropped sequentially for the last two months.


The leader of the ruling League party, Matteo Salvini, pulled his support for the country’s governing coalition on Thursday.  With the news Milan’s FTMIB index tumbled 1.6 percent with Italian banks being the hardest hit.   Political developments in Rome have made markets more sensitive, with Italian bond yields jumping over doubts about the soundness of the government.

German Trade Surplus Shrinks

Germany’s trade surplus narrowed from January to June of this year as strong domestic demand led to imports growing faster than exports, a sign that Europe’s largest economy is slowing.  The Federal Statistics Office said on Friday that imports rose 3 percent to 556.2 billion euros in the first six months.  Meanwhile exports grew 0.5 percent to 666.1 billion euros.  Year on year, the trade surplus narrowed to 109.9 billion euros from 122.4 billion.  The current account surplus, which measures the flow of goods, services and investments fell to 126.4 billion euros from 130.6 billion, data showed.  Since 2011, Germany’s current account surplus has been consistently above the European Commission’s indicative threshold of 6 percent of gross domestic product, reaching a record high of 8.9 percent in 2015 and narrowing to 7.4 percent in 2018.  It is expected to shrink further.  The International Monetary Fund and the European Commission urged Germany for years to do more to lift domestic demand so as to boost imports, stimulate growth elsewhere and reduce global economic imbalances.

Germany’s Industrial Output

German industrial output fell more than expected in June driven by weaker production of intermediate and capital goods.  This is an indication that Germany’s biggest economy contracted in the second quarter as exporters got caught in trade disputes.  Industrial output dropped by 1.5 percent on the month figures released by the Statistics Office showed on Wednesday.  The US and China are important export destinations for German manufacturers, which means that the trade dispute is having a large impact on German goods producers.

Eurozone Factory

Eurozone business growth hit a wall in July as demand dropped according to a survey which showed a deepening downturn in manufacturing is affecting the bloc’s dominant services industry.  The IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI) which is considered as a good measure of overall economic health, dropped to 51.5 in July from June’s 52.2.  The 50 mark separates growth from contraction.  Markets have instead focused on the trade war between the US and China.  The US on Friday took the decision to impose 10 percent tariffs on the remaining $300 billion in Chinese imports.  China said it would fight back against such action.  Italy was on its own amongst the four biggest economies whose PMI rose.  This offers some hope of recovery, but activity in Germany’s private sector hit its weakest level in more than six years.  Meanwhile, growth dropped in France and Spain, whilst growth in Britain unexpectedly accelerated to a nine-month high in July, reducing some concerns about whether the economy is slipping into recession before Brexit.  Forward looking indicators suggest that there will not be a turnaround anytime soon and demand for services in the eurozone diminished hit by dropping new export business.  With a gloomy outlook, impacted by trade war worries, slowing sales growth and concerns over Brexit IHS Markit said the PMI indicated a third-quarter economic growth of only around 0.1 percent.

Latest On the Trade War 

US President Donald Trump on Tuesday dismissed fears of a protracted trade war with China although a warning from Beijing that labelling it a currency manipulator would have severe consequences for the global financial sector.  Trump pledged to stand with American farmers amid the Chinese retaliation.  China has stopped US agricultural purchases and raised the possibility of additional tariffs on US farm products.  US farmers have been among the hardest hit in the trade war.  American farmers are a key political constituency for Trump.  Shipments of soybeans, the most valuable US farm export, to China which is a top buyer sank to a 16 year low in 2018.  On Wednesday President Donald Trump said this tough stance on China’s economic and trade policies would ultimately benefit the American economy, even as Beijing signalled it could strike back by curbing sales of chemicals known as rare earths that are used in everything from iPhones to military equipment.

Markets Wrap

Monday saw global stocks fall to a sixth day on Monday amid the escalation of trade tensions between the US and China.  Safe-haven assets, core government bonds and gold rallied.   After President Trump signalled another round of tariffs on Chinese imports, European shares dropped to two-month lows, with the pan-European Stoxx 600 index shedding 2 percent on top of the 2.5 percent lost on Friday, which was the worst day so far in 2019.  The MSCI’s All Country World Index which tracks shares in 47 countries was down 0.7 percent on the day.  The VIX volatility index which is referred to as Wall Street’s “fear gauge” rose to 19.02 percent, its highest since 13th May.  Meanwhile, Europe’s equivalent  .V2TX hit its highest since early January.  Monday also saw the Dutch 30-year government bond yields turned negative for the first time as the euro zone yields dropped further on concerns over the US-China trade war and a no-deal Brexit.  US 10-year yields dropped 7 basis points to 1.77 percent, while Germany’s 10-year bund yields fell -0.53 percent.  The three-month to 10-year US yield curve was at its most inverted in 11 years.  Tuesday saw global stocks extending their losses, after Washington tagged China as a currency manipulator.  As investors moved assets to avoid risk, safe-haven assets, including bonds, and some currencies such as the yen and Swiss francs benefited.  US Treasury Secretary Steven Mnuchin said on Monday that the government had determined that China is manipulating its currency, and that Washington, would engage the International Monetary Fund to eliminate unfair competition from Beijing.  Also, on Tuesday US stocks jumped more than 1 percent, recovering back from a sharp sell-off the previous day as China stepped in to stabilise the yuan, easing concerns that currencies would be the next target in the US-China trade war.  On Wednesday Japanese stocks slipped as a strong yen effected exporter.  Meanwhile a bounce by Wall Street following the recent tumble helped to limit the losses.  On Friday European shares fell, posting a second straight week of losses amid concerns about the stability of Italy’s government that rattled investors.

Currency Roundup

The biggest mover in currencies was the yuan, as China let the yuan to tumble past the key level of 7 to the dollar for the first time in more than a decade.  This is a sign Beijing might be willing to tolerate further currency weakness as the trade dispute worsens.   Currencies of other Asian economies that are closely linked with China’s growth prospects also dropped.  Meanwhile, the safe-haven Japanese yen, which investors tend to buy in times of risk aversion, rose 0.7 percent to its highest since a January flash crash.  The euro was 0.3 percent higher to the dollar at $1.1137.  The sterling hovered near 2017 lows at $1.2117, pressured by concerns about Britain exiting the EU without a trade deal in place. Monday saw the sterling subdued after hitting a 23-month low against the euro, amid heightened worries of a no-deal Brexit and the growing probability of a general election after the October Brexit deadline.  On Tuesday, the offshore yuan pulled back from an all-time low after Beijing appeared to take steps to prevent the currency from weakening further.  China on Tuesday said it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.  Furthermore, the People’s Bank of China fixed the daily reference rate of the onshore Chinese yuan at 6.9683 firmer than the expected 6.9871 and below the key 7 rate through which it broke on Monday.  The small rebound in the Chinese renminbi has shifted investors’ focus away from safe-haven currencies, pushing the Japanese yen and the Swiss franc lower.   On Wednesday the yen remained strong against the dollar, staying close to a seven-month high reached the previous day.   Besides the yen, the swiss franc also considered a safe haven currency gained on Wednesday after the New Zealand central bank cut interest rates by more than expected, raising concerns about the weak global economy.  The Reserve Bank of India and the Bank of Thailand also cut rates.  Meanwhile the Aussie fell 0.49 percent to $0.6725 as markets ramped up bets that Australia would cut rates faster and deeper than expected.  The session low for the Australian dollar was $0.6678, the lowest since early 2009.  On Friday the pound was steady after a drop on Thursday, on the back of senior aides of Prime Minister Boris Johnson saying they would hold a parliamentary election in the days after Brexit if lawmakers sink the government with a no-confidence vote.

Reserve Bank of New Zealand

Whilst the central banks globally have taken a dovish stance in recent months in order to combat low inflation rates and to revive growth, the extent of the move taken by the Reserve Bank of New Zealand (RBNZ) caught the markets off guard.  The RBNZ cut rates by 50 basis points against an expected 25 basis points to 1 percent.  Governor Adrian Orr also said negative rates were possible.  The New Zealand dollar fell 2 percent on Wednesday after the central bank’s aggressive move.

Oil Prices

Oil prices fell on Monday on renewed global economic growth concerns after US President Donald Trump threatened to escalate a trade war with China with more tariffs.  With the yuan tumbling, a lower yuan would raise the cost of dollar denominated oil imports in China.  China is the biggest crude oil importer.  Another factor putting pressure on prices are signs of rising oil exports from the United States.  US shipments surged by 260,000 barrels per day in June to a monthly record of 3.16 million bpd, showed US Consensus Bureau data on Friday.  On Tuesday oil prices rebounded from the big falls in recent sessions.  Brent crude remained near the eight-month lows around $60 a barrel due to escalating trade tensions between the US and China.  On Wednesday the Energy Information Administration said that US crude stocks rose last week, while gasoline and distillate inventories also rose.

Gold And Other Precious Metals

Gold prices jumped 1 percent on Wednesday to their highest in more than six years, as the trade war between China and the US persists, motivating investors to turn to safe-haven assets.  Worth noting that lower US interest rates put pressure on the dollar and bond yields, increasing the appeal of non-yielding bullion.  Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, rose 0.21 percent to 836.92 tonnes on Tuesday from Monday.  Other precious metals also rose, with silver gaining 1.8 percent to $16.74 per ounce, its highest since June 2018.

Malta:  Inbound Tourism June 2019

Total inbound tourists for June were estimated at 280,522, an increase of 5.5 percent when compared to the corresponding month in 2018.  Whilst a total of 251,747 inbound tourist trips were carried out for holiday purposes, a further 15,545 were undertaken for business purposes.  Inbound tourists from Non-EU countries went up by 17.1 percent when compared to the corresponding month in 2018.  Total tourist expenditure was estimated at Eur 235.4 million, an increase of 10.7 percent over the corresponding month in 2018.  For the first six months of this year, inbound tourists amounted to 1,208,068 an increase of 3.9 percent over the same period in 2018.  Total tourism expenditure was estimated at EUR 883.5 million, 5.1 percent higher than that recorded for 2018.  Total expenditure per capita stood at EUR 731, representing an increase of 1.1 percent when compared to 2018.

Malta:  Index Of Industrial Production – June 2019

The seasonally adjusted index of industrial production increased by 1.9 percent over the previous month. The increases were registered in the production of energy (4.7 percent), consumer goods (4.5 percent) and capital goods (2.5 percent).  The production of intermediate goods decreased by 2.6 percent.   When compared to the same month last year, the working-adjusted index of industrial production increased by 1.7 percent.  The increases were registered in the production of energy (15.7 percent) and capital goods (2.3 percent).  Meanwhile the production of intermediate goods and consumer goods decreased by 2.3 percent and 1.6 percent respectively.

Malta:  Motor Vehicles 2nd Quarter 2019

According to data from Transport Malta, by the end of June this year, the stock of licensed motor vehicles stood at 391,914, out of which 77.6 percent were passenger cars, 13.6 percent were commercial vehicles,7.6 percent were motorcycles and less than one percent minibuses.  Newly licensed vehicles put on the road during the period under review amounted to 7,439.

Antonella Mercieca

Client Relationship Manager


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


August 9th, 2019

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