“United Kingdom:  Boris Johnson Elected As Leader Of Conservative Party …”

United Kingdom:  Boris Johnson Elected As Leader Of Conservative Party

Boris Johnson was elected as leader of Britain’s governing Conservative Party.  On Thursday, the New Prime Minister Boris Johnson filled his cabinet with Brexiteers and vowed to leave the European Union on 31st October with or without a transitional deal.   On Thursday Boris Johnson said that Brexit would make Britain the greatest place on earth, in a debut speech as prime minister before parliament.  Johnson who was hailed by the US president as Britain’s Trump has promised to strike a new Brexit divorce deal with the European Union and to energise the world’s fifth largest economy.  Johnson’s victory has placed an avowed Brexiteer in charge of the British government for the first time since the 2016 EU referendum which shocked the world and roiled financial markets.  Johnson told parliament that the Irish backstop, an insurance policy designed to prevent the return of a hard border between the Irish Republic and Northern Ireland, must be abolished.  The Sterling which lost more than 5 percent of its value since early May has recently touched a 27-month low against the dollar and a six-month low versus the euro.  It was little changed on Johnson’s first day in office, trading below $1.25.

Germany Manufacturing Slows

Data showed that a recession in German manufacturing had worsened, prompting investors to increase the bets on a more dovish European Central Bank on Thursday.  The performance of German goods producers dropped to its lowest in seven years, a survey showed on Wednesday Markit’s flash composite Purchasing Managers’ Index (PMI) which tracks the manufacturing and services that account for more than two-thirds of the German economy, fell to 51.4 from 52.6 in the previous month. This was the lowest reading since March, though it remained above 50, the line that separates growth from contraction.  The data added to a weaker than expected reading across the block with the IHS Markit’s Flash Composite Purchasing Managers’ Index dropping to 51.5 this month from a final June reading of 52.2.

Italy

Benchmark Italian bond yields stalled near three year lows on Monday as investors geared up for a showdown between Italy’s coalition partners this week.  The far-right League and the anti-system 5-Star Movement have been at each other for months but tensions have risen even further recently with each accusing the other of betrayal and bad faith. Matteo Salvini the League Leader last week warned he would quit the 14 month old government unless the 5-Star dropped its opposition to projects close to his party’s heart.  Yields on the 10 year maturities for Italian government debt steadied at 1.62 percent  a bit short than the October 2016 low of 1.51 percent.

European Data

Weak economic data in the region added to the expectations that the European Central Bank will ease monetary policy.  Eurozone business growth was weaker than expected in July, effected by a deepening contraction in manufacturing, and forward-looking indicators in surveys published on Wednesday point to worse conditions next month.  Whilst a recession in Germany’s manufacturing sector worsened in July, French business growth also slowed unexpectedly in the month.

European Central Bank

The European Central Bank opened the door to rate cuts and the restart of bond purchases on Thursday, with the aim to boost confidence in the bloc.  The ECB kept interest rates unchanged for now but saw rates at present or lower levels through mid-2020 and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.  The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0%, 0.25% and -0.40%.  The Governing Council intends to continue investing, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.   The ECB also stands to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.   The reason for the ECB stimulus is supported by weak economic data, particularly in foreign trade and manufacturing, The German Ifo institute warned earlier on Thursday that recession was spreading across all important sectors of the German industry and sentiment was deteriorating quickly.

Australia’s Central Bank

Australia’s central bank is ready to cut rates again “if needed” to support the economy but believes a move to quantitative easing is highly unlikely and a distant prospect, said a top official on Tuesday.  According to Reserve Bank of Australia Governor Christopher Kent, the local currency would likely be higher if the bank had not cut interest rates twice since June, taking them to a record low of 1 percent.

Markets Wrap

European shares rose on Tuesday, tracking the rise on Wall Street and in Asia as better-than-expected results for Banco Santander which helped put Spanish markets on course to end a four-session losing streak.  Auto stocks led the gains among major sectors.  The FTSE index took heart from another nudge lower in the pound ahead of the results of a Conservative leadership.  Eurozone bond yields rose on Wednesday before the release of key manufacturing and services data that could give an indication of the expectations of what the ECB will offer markets at its meeting held on Thursday.  Wednesday saw yields rising overnight after a report that US negotiators are heading to China to discuss trade terms which boosted the hope that the two countries may deescalate a trade war that has weighed on economic growth.

Currency Roundup

Foreign exchange markets paused on Monday as investors waited to see by how much policy makers might ease policy, beginning with the ECB on Thursday. Meanwhile, the dollar edged to a two-week high versus its rivals on Tuesday after US President Donald Trump and congressional leaders reached a deal on Monday on a two-year extension of the debt limit and federal spending caps that would avert a feared government default later this year but add to rising budget deficits.    The euro edged down towards $1.12 as the dollar gained thanks mostly to safe-haven demand amid rising tensions in the Middle East.  Meanwhile, the swiss franc hit a new two-year high against the euro, touching 1.1010 franc per euro as it benefited from investors looking for a refuge from worries about the eurozone economy.  Sterling fell for the third straight day on Tuesday, dragged down by a firmer dollar and on concerns the new prime minister, will pull Britain out of the EU with no trade deal in place.  Also, the China’s yuan hovered around two-week lows against the dollar on Tuesday, as investors anxiously awaited policy decisions by major overseas central banks.  Wednesday saw the euro slipping to a two-month low as markets awaited to gauge the European Central bank’s stance on policy amid expectations that it could eventually lower interest rates and join the global easing trend.  The Eur was 0.5 percent lower at $1.1145 after touching $ 1.1143, its lowest since 31 May.  On Thursday the euro sank to a new two-month low against the dollar as investors waited for the ECB to confirm that borrowing costs will get cheaper and that it will start buying bonds again.  Meanwhile sterling traded below $1.25, little changed after new Prime Minister Boris Johnson filled his cabinet and vowed to leave the European Union on 31 October with or without a transition deal.

The International Monetary Fund

On Tuesday the International Monetary Fund cut its forecast for global growth this year and the next, warning that further US-China tariffs or a disorderly exit for Britain from the European Union could further slow growth, weaken investment and disrupt supply chains.  The IMF said that downside risks had intensified, and it now expected global economic growth of 3.2 percent in 2019 and 3.5 percent in 2020, a drop of 0.1 percent for both years from its April forecast.  This is the fourth downgrade since October.  The IMF further said that economic data so far this year and softening inflation pointed to weaker-than-expected activity, with trade and technology tensions and mounting inflationary pressures posing future risks.  Trade volume growth declined to around 0.5 percent in the first quarter, its slowest pace since 2012, it said, with the slowdown mainly hitting emerging Asian countries.  Meanwhile, global trade volumes fell 2.3 percent between October and April, the sharpest six-month decline since 2009, when the world was in the midst of the Great Recession, according to estimates by the Netherlands Bureau of Economic Policy Analysis (CPB).

Oil

Monday saw the prices of oil rising as investors were worried about possible supply disruptions in the energy-rich Middle East after Iran’s seizure of a British tanker last week.  Oil prices rose 1 percent on Thursday amid Middle East tensions and a big fall in US crude stocks.  Gains however were capped as weak manufacturing data in Western nations indicated slowing economic growth that could reduce fuel demand.  The Energy Information Administration reported on Wednesday that US crude stocks fell by nearly 11 million barrels last week.  Oil prices have also been under pressure from concerns about the global economic growth.  The White House eased some of the concerns by saying that top US and Chinese negotiators would meet next week to continue with the talks, and global equities edged up on the news.

Malta:  Industrial Producer Price Indices – June 2019

During June 2019, the industrial producer price index registered an increase of 1.5 percent when compared to the same month of the previous year.  This was due to a rise of 2.4 percent in intermediate goods, 1.31 percent in consumer goods and 1.27 percent in capital goods. There were no price changes registered within the energy sector.  During June 2019, the producer price index for total industry registered an increase of 0.54 percent over the previous month.  This was due to a price rise of 1.34 percent within the intermediate goods but mitigated by a drop of 0.05 percent in the capital goods sector.  There were no changes within the energy and consumer goods sectors.

Malta:  Registered Unemployment – June 2019

In June the number of persons registered for work stood at 1,616 decreasing by 9.1 percent when compared to the corresponding month in 2018.  Registrants for work decreased when compared to June 2018, irrespective of how long they had been registering for work.  The largest decrease was recorded among persons who had been registering for more than one year.  The largest share of men and women on the unemployment register sought occupations as clerical support workers with 18.8 percent and 39.3 percent respectively.

Antonella Mercieca

Client Relationship Manager

Source:

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

Date:

July 26th, 2019


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