“Trade Talks Between US And China …”

Trade Talks Between US And China

The highlight of this week was the high-level US-China trade negotiations in Washington on 10-11 October. The top trade negotiators met for the first time since late July to find a way to end the 15-month trade war.  On Thursday top US and Chinese negotiators wrapped up their first day of talks in more than two months as business groups expressed optimism to be able to ease the trade war and delay a US tariff hike scheduled for next week.  US Treasury Secretary Steven Mnuchin and US trade representative Robert Lighthizer met with Vice Premier Liu He and other Chinese officials.  After the talks concluded US President Donald Trump said, “We had a very, very good negotiation with China.” He spoke again about his plan to meet with Liu at the White House on Friday, which is regarded as a good sign.

Trade War

Tensions between the US and China rose this week as the US imposed visa restrictions on Chinese officials and placed some major Chinese companies on a blacklist. The US government has expanded the trade blacklist and included some of China’s top artificial intelligence startups, punishing Beijing for its treatment of Muslim minorities and causing tensions ahead of high-level trade talks in Washington this week.   This bars firms from buying components from US companies without US government approval.  This follows the same blueprint used by Washington in its attempt to limit the influence of Huawei Technologies Co Ltd from what it says are national security reasons.  The decision which was criticised by Beijing, targets 20 Chinese public security bureaus and eight companies including video surveillance firm Hikvision as well as leaders in facial recognition technology SenseTime Group Ltd and Megvii Technology Ltd.  China said that the US should stop interfering in its affairs.  It will continue to take firm and decisive measures to protect its sovereign security, said the foreign ministry spokesman in a media briefing.  Meanwhile, a report that said China officials are increasingly reluctant to agree to a broad trade deal with the US, kept investors nervous ahead of the trade negotiations that started on Thursday.

Brexit And The Sterling

Sterling fell in early London trading on Monday as investors grew increasingly concerned that Britain and the EU were no where near on agreeing a Brexit withdrawal deal.  Britain’s latest Brexit proposal has been rebuffed in Brussels. Boris Johnson has repeatedly vowed to take Britain out of the EU on 31 October even without a divorce deal in place, but a law called the Benn Act requires him to seek a delay if the UK cannot agree a withdrawal deal by 19th October.  Sterling traded 0.2 percent lower at $1.2311 and was down 0.2 percent against the euro at 89.195 pence.  Some recent disappointing economic data over the past week has added to concerns about the British economy and the impact Brexit has related to political uncertainty.  Wednesday saw the sterling erasing earlier gains after the Northern Irish party that supports the British government said it would empathically oppose a reported EU concession on the Irish backstop under any Brexit deal.  Meanwhile, EU officials said that a report in the Times stating that Brussels was prepared to offer a mechanism for the Northern Irish assembly to leave a new so-called backstop after a number of years was untrue.  The pound jumped more than 0.5 percent against the US dollar after the report but after the chief whip of Northern Ireland’s Democratic Unionist Party said it would oppose any such concession the sterling went back to $1.2210, flat on the day.  The main issue that is preventing London and Brussels from reaching a Brexit withdrawal deal are the proposals about what happens to the Irish border. Meanwhile on Wednesday European Parliament head David Sassoli said that “not much progress” has been made with regards to the Brexit talks and that Britain must now ask for a delay to its 31st October departure date or leave without a divorce agreement.  He further said to a plenary session of the house, “The European Parliament is of course open to possibility of an extension if there are specific objective reasons for it.”    On Thursday sterling dipped to a one-month low against the euro ahead of a meeting between the British and Irish leaders as Brexit remains unclear just three weeks before Britain is due to leave the European Union.  Against the dollar, the pound rose 0.3 percent last trading at $1.2238 whilst against the euro, sterling was at 90.03 pence after touching lows of 90.7.  Irish Prime Minister Leo Varadkar said, after what he called a positive meeting with Boris Johnson, that a Brexit deal could be clinched by the end of October to allow the UK to leave the EU in an orderly fashion.  In a joint statement, the two leaders said they “could see a pathway to a possible deal” and that the EU’s chief negotiator Michel Barnier would meet his British counterpart Steve Barclay in Brussels on Friday.  Sterling shot up 1.5 percent to $1.2387 and the 10 year government bond yields recorded their biggest one-day rise in nearly four years.

Italy Opened The Books For The Dollar Denominated Bonds

On Wednesday Italy opened the books for its first dollar-denominated bond sale in nearly a decade, with an early investor interest exceeding $10 billion.  Italy is selling three- dollar denominated bonds of 5, 10 and 30 years’ maturity.  The deal has been in preparation for more than a year.  The last time Italy borrowed in dollars was in September 2010, before the eurozone debt crisis and has 5.5 billion euros worth of dollar bonds outstanding.

Calls On Germany And The Netherlands To Spend More

Top Eurozone officials said on Wednesday that Germany and the Netherlands which run budget surpluses should invest more to help boost economic growth at home and throughout the eurozone.  Although the ECB calls for fiscal stimulus, the eurozone is not planning any concerted effort.  In a discussion paper, the EU’s executive arm said the slowing eurozone economy needs pre-emptive fiscal stimulus or it will face a long period of low growth and that economic activity will not rebound this year.  French and Italian finance ministers have also urged Germany and the Netherlands to act.  The Commission document further said that to spur growth, further ECB monetary policy easing would be less effective and have larger unwanted side effects than fiscal stimulus by governments, which now would be more effective than in normal economic times.

Federal Reserve Chairman Jerome Powell

The FED Chairman Jerome Powell repeated at the annual meeting of the National Association of Business Economics that the central bank will act “as appropriate” amid an economy that he said is likely to continue to expand.  He said, “Clearly things are slowing a bit”, noting that it’s normal for long expansions to have such periods.  Twice in the 1990s, he said, the economy similarly downshifted, only to gain steam once the FED cut interest rates at a few times.  He further added that, the FED’s two interest rates this year, in July and September, were made in that spirit and have helped maintain a “favourable” outlook for jobs and inflation.  The US economy “may just be gathering itself, there is no reason why the expansion can’t continue,” he added.  Powell also noted the recent revisions in data, that show less job growth in the year to March than was previously estimated, turning a booming market into moderate growth.  Other release of data such as possible contraction in manufacturing, added to the sense of reduced momentum.  Powell in his speech tried to let markets know that the central bank would soon begin allowing its balance sheet to expand to ensure a smoother functioning of US short-term funding markets.

Minutes From The FED

The minutes of the last Central bank policy meeting showed that the Federal Reserve policymakers supported the need for an interest rate cut in September, but they remained divided on the path ahead for monetary policy.  The minutes also showed that the FED would soon need to discuss increasing the size of its balance sheet.  In this regard, Fed Chair Jerome Powell announced an imminent expansion of the central bank’s assets on Tuesday.  In the meeting held on 17-18th September, policymakers decided to lower the benchmark overnight lending rate by a quarter of a percentage point to between 1.75 percent and 2 percent.  The FED has lowered the borrowing costs twice this year after having raised interest rates nine times since 2015.  The next meeting will be held on 29-30th October.  The markets were little moved with the release of the minutes as investors focused more on the meeting between the US and China

Markets Wrap

European shares dropped on Monday extending their losses from their sharpest weekly drop this year, amid weak data on German industrial orders that underscored the concerns of a looming recession in Germany.  Investors were also edgy ahead of talks between the US and China.  Germany’s DAX declined 0.2 percent after data showed German industrial orders fell slightly more than expected in August.  Meanwhile, trade-sensitive automakers dropped 1 percent, leading declines among major sectors.  Meanwhile, Asian shares edged higher on Monday after data showed that the US unemployment rate dropped to its lowest in almost 50 years easing concerns of a slowdown in the world’s largest economy.  The US unemployment rate fell to 3.5 percent in September to reach the lowest since December 1969.  Non-farm payrolls also grew in September, but slightly less than expected.  Upbeat corporate earnings boosted European stocks on Wednesday after a 1 percent drop in the previous session.  Sentiment remained fragile over the uncertainty of BREXIT and the trade talks.  The export-heavy FTSE 100 blue-chip index underperformed its peers after sterling jumped on a report that the European Union was ready to agree to a major concession in Brexit negotiations.  Wednesday saw eurozone government bond yields rising and reversing some of the previous day’s drop as a media report eased worries about the escalating US-China trade tensions.  European shares rallied and the US stock market opened higher, as investors moved from the safe-haven debt.  The ten-year bond yields across the euro area were 3-4 basis points higher on the day, with Germany’s benchmark 10 year- Bund yield was up 4 bps at -0.56 percent.  The trade war between the US and China is key risk to global growth.  Bond yields typically fall on lowered growth and inflation expectations.  Bond yields across the eurozone remain down heavily in year to date terms with the German, French and Dutch 10-year yields, for example are down 80-100 bps this year.  Meanwhile a rally in technology stocks boosted Wall Street as investors cheered the media reports signalling an ease in trade tensions between the US and China ahead of the talks that started on Thursday.  On a separate note the Financial Times said Beijing was offering to increase its annual purchases of US agricultural products.

Currency Roundup

The Australian dollar jumped on Wednesday after Bloomberg reported that China remained open to signing a partial trade deal with the United States despite being placed on the tech blacklist.  The Australian dollar which is a global risk barometer, was last up 0.3 percent, at $0.6744 and the New Zealand dollar rose 0.4 percent to $0.6319.  The biggest move in the foreign exchange market was the plunge in the Swedish crown, against the euro and the dollar amid concerns that the US-China trade war over trade and foreign policy was nowhere near a resolution and was having a negative impact on the global economy.  Sweden has an open economy that makes its currency vulnerable to global growth and the trade war between the US and China.   The Swedish crown was last steady, after falling earlier to a 10-year low of 10.923 against the euro and a 17 year low of 9.9639 against the dollar.  Wednesday also saw the yuan weakening to a one-month low in early trade as US-China tensions increased ahead of the high-level trade talks.  It recovered the losses by midday as investors waited for news from the negotiations.

Oil

On Wednesday oil prices climbed following media reports that China was open to the agreement of a partial deal with the United States, while unrest in OPEC members Iraq and Ecuador also supported prices.  OPEC granted Nigeria a higher oil output target under an OPEC deal to limit oil supply in a move which was unannounced by the group.  The quota increase will mean Nigeria will see an improvement in its compliance with the supply cut accord, but it is still pumping more crude than the new target according to figures from OPEC and industry surveys.

Gold

Gold prices on Wednesday held on to the gains of the previous session as the hopes for any progress in the trade war saga affected risk appetite.  Meanwhile, the markets were awaiting news by the US Federal Reserve over monetary easing.  Spot gold remained at $1,510.50 per ounce and stood above the $1,500 level after climbing as much as 1 percent in the previous session.   Spot gold gained 0.1 percent to $1,506.78 per ounce having reached a peak of $1,516.77 early in the session, its highest since 3rd October.  Investor’s interest in the SPDR Gold Trust GLD which is the world’s largest gold-backed exchange-traded fund, have been at their highest since November 2016.

Malta:  Index Of Industrial Production – August 2019

In August 2019, the seasonally adjusted index of industrial production increased by 5.5 per cent.  Increases were registered in the production of consumer goods (6.7 percent), energy (3 percent) and intermediate goods (2.1 percent).  The production of capital goods decreased by 0.3 percent.  Meanwhile, when compared to August 2018, the working-day adjusted index of industrial production increased by 7.4 percent.  Production increases were registered in all the main industrial groupings namely production of consumer goods (14.8 percent), capital goods (4.6 percent), intermediate goods (2.6 percent) and energy (0.2 percent).

Malta: Inbound Tourism – August 2019

Total inbound visitors for August were estimated at 338,758 an increase of 6.7 percent when compared to the corresponding month in 2018.  Whilst a total of 313,506 inbound trips were carried out for holiday purposes, a further 9,656 were taken for business purposes.  Total tourist expenditure was estimated at EUR 329.6 million, an increase of 2.8 percent over the corresponding month in 2018.  Meanwhile for the first eight months of 2019, inbound tourist trips amounted to 1,848,935 an increase of 4.7 percent over the same period of 2018.  Total tourism expenditure was estimated at almost EUR 1.5 billion, 3.9 percent higher than that recorded for 2018.

  

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

October 11th, 2019


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