“Vote Withdrawal…”

Vote Withdrawal

Theresa May postponed a parliamentary vote which she admitted she would lose.  A day after withdrawing the vote in the face of hostility from lawmakers, Prime Minister Theresa May sought Angela Merkel’s support to save her Brexit deal and went to meet European leaders seeking support for changes to her Brexit deal.    The European Union ruled out renegotiating the divorce treaty.  The message from the EU was clear that it will give “clarifications” but will not countenance reopening the treaty.  Jean-Claude Juncker said in an address to the European Parliament in Strasbourg that “the deal we achieved is the best possible.  It’s the only deal possible. There is no room whatsoever for renegotiation.”  The British parliament will vote on a deal before 21 January according to May spokeswoman.  If there is no satisfactory deal by then, parliament will still be given a debate on the issue.  The main issue has been the Irish “backstop”, an insurance policy that would keep Britain in a customs union with the EU in the absence of a better way to avoid border checks between British ruled Northern Ireland and EU member Ireland.  Those criticising May are saying that it could leave Britain subject to EU rules indefinitely.  Juncker said that neither side intended for the backstop ever to take effect, but it had to be part of the deal.  On Monday the pound spiralled down to $1.2505 and plunged to its lowest level since April 2017. On Tuesday an attempt to oust British Prime Minister gathered pace.      On Wednesday Theresa May survived a confidence vote by the Conservative Party, however a third of her lawmakers indicated parliament was heading towards deadlock over Brexit.  200 of the Conservative lawmakers voted in support of May as a leader, 117 dissented.  This indicates that she was no nearer to passing the deal.  On Thursday she headed to Brussels to ask the other EU leaders for clarification of the deal.  EU leaders assured Theresa May that the Brexit Treaty she agreed last month but is struggling to get through the UK parliament should not bind Britain forever to EU rules.

UK Economy

The British economy has lost its momentum in the three months to October amid falling car sales and factory orders due to weaker demand.  Gross domestic product growth in the three months to October slowed to 0.4 percent from a robust 0.6 percent in the third quarter of 2018.  The third quarter seems to have been boosted by consumer spending from an unusually warm summer.   The Office for National Statistics warned that the third-quarter growth data was at risk of being revised downwards due to a big upwards revision in Britain’s trade deficit for the three months to September.  Recent business surveys show that Britain’s economy is slowing sharply in view of the uncertainty caused by Brexit.

France, Macron’s Tax cuts   

After a wave of protests that have challenged his authority, President Emmanuel Macron announced wage rises for the poorest workers and tax cuts for pensioners.  However, he refused to reinstate a wealth tax.  The measures could leave his government to come up with extra budget savings or risk overshooting the budget deficit limit of 3 percent.  The measures have put pressure on French bond yields with the spread increasing to its highest level over those of Germany in nineteen months.  The spread over the safe-haven German Bund hit 47.5 basis points.  According to ministers, the measures announced by Macron would put an 8 to 10 billion euro hole in the budget, on top of the 4 billion euros lost, after Macron scrapped hikes to fuel taxes in a first wave of concessions last week.

Italy’s Yields, And The Talk Of Early Election

Italian bond yields fell on Wednesday, as a source in the prime minister’s office said Italy was to present a revised budget for 2019 to the EU.  Rome’s draft budget was rejected by the EU as the deficit would rise to 2.4 percent of gross domestic product next year from a projected 1.8 percent in 2018.  Italian bonds were down as much as six basis points with the two-year bond yields at 0.61 percent.  The ten year bond yields fell six basis points to 3.06 percent dragging Spanish and Portuguese yields lower too.  Portugal’s 10 year bond yield fell to its lowest since late July at 1.707 percent and Spanish hit their lowest since late August.  Italian Deputy Prime Minister Matteo Salvini denied a report in la Repubblica daily saying that his League party was considering pushing for a snap election in March.  Snap elections could take investors by surprise.  On Thursday, short dated Italian bonds hit their lowest level in six months after the government confirmed it would cut its deficit goal for 2019.  Italian Prime Minister Giuseppe Conte said the government had cut its deficit target for next year to 2.04 percent of gross domestic product from the 2.4 percent it had originally proposed, and it expected the European Commission to accept the proposal.

European Central Bank

The European Central Bank formally ended its 2.6 trillion euro bond purchase scheme on Thursday but promised to keep feeding stimulus for years into an economy struggling with an unexpected slowdown and political turmoil.  Growth is weaker than expected and the outlook is clouded of a global trade war, the prospect of hard Brexit and Italy’s budget deadlock with the European Commission.  The ECB lowered its growth and inflation projections for next year, forecasting a steady slowdown in the coming years as the effect of the stimulus wanes and growth returns to its bloc’s potential at about 1.5 percent.  Draghi remained close to the bank’s argument that the drivers of growth remain in place and that the slowdown is merely a return to normal after an exceptional run.  He also argued that for much of the last four years, the ECB’s asset purchases had been the only driver of the recovery, suggesting a slowdown is a natural consequence of the ECB’s withdrawal.  The ECB promised to keep rates at current record lows at least through next summer.

China-US Trade Talks

On Tuesday China and the US discussed the road map for the next stage of their trade talks.  In December the president of the United States and Chinese President Xi Jinping agreed to a truce that delayed the planned 1^st January increase in tariffs from 10 percent to 25 percent on the $200 billion worth of Chinese goods.  Trade representative Robert Lighthizer said that unless US China trade talks wrap up successfully by 1 March, new tariffs will be imposed.

Japan’s Economy

Japan’s economy contracted the most in four years in the third quarter, as companies cut down on spending.  The slump in the third-biggest economy, adds to the weakening momentum experienced by Asia and Europe with recent data in China and Australia showing a slowdown in growth.  There are concerns about the impact of the China-US trade war.  In the July-September quarter, Japan’s gross domestic product shrank at an annualised rate of 2.5 percent.  This is the worst downturn since the second quarter of 2014.  The slide is driven by a series of natural disasters that forced factories to cut production.  The capital expenditure component of GDP fell a sharp 2.8 percent from the second quarter, worse than the expected 1.6 percent decline.  That was the biggest decrease since the third quarter of 2009, as wholesalers, retailers and information and communications machinery cut spending, showed the data from the Cabinet office.  Businesses cutting on their spending is of major worry for policy makers who are counting on capital expenditure to boost growth and inflation.  Capital Expenditure has been important for the economy since late 2016, underpinned by investment in automation and labour-saving technology to cope with labour shortages.

India

On Monday the abrupt resignation of India’s central bank governor Urjit Patel, was a shock after long months of struggle over policy with the government that has raised concerns about the bank’s independence, as the national election draws close.  Government officials have been putting pressure on the Reserve Bank of India to allow some bad-debt-laden public sector banks to lend more easily and pushed for it to hand over some of its surplus reserves to help fund the fiscal deficit.  The resignation sent India’s NSE share index down in early trade, but the benchmark later pared losses and went into positive territory.

Warning from the IMF

A top official at the International Monetary Fund warned on Tuesday that storm clouds were gathering over the global economy and that governments and central banks might not be well equipped to cope.  “I see storm clouds building and fear the work on crisis prevention is incomplete,” said IMF First Deputy Managing Director David Lipton at a banking conference.  He warned that strains could leave policymakers under pressure and in uncharted waters.  The most imminent and biggest risk is the current trade war between the United States and China.  If all the threatened tariffs are put in place, as much as three quarters of a percent of global GDP would be lost by 2020, the IMF estimated.  He said that, “this immediate ceasefire (recently announced between Washington and Beijing) leads to a durable agreement that avoids an intensification or spread of tensions.”

Market Wrap

On Tuesday, US stocks jumped at the open, led by industrial and technology stocks, amid signs of progress in trade talks between the United States and China.  Whilst the Dow Jones Industrial Average rose 1.21 percent at the open, the S&P 500 opened higher with 1.01 percent.  The NASDAQ gained 1.44 percent.  Stocks rose tentatively despite the uncertainty over Brexit, a China-US trade war and French protests.  Stocks in Asia and Europe were boosted by the contact between the US and China, however sterling stumbled near 20 month lows, as the market sought clarity over the next steps for Brexit, after Theresa May postponed the vote on her deal.  Signs that China is moving ahead with the United States, has rekindled investor’s sentiment towards equities and boosted European stocks.  Meanwhile domestic UK stocks lagged, amid the political uncertainty.  Trade-sensitive industrials, materials and consumer stocks drove the European rally.  Tech shares led the S&P 500 index higher, following gains in Europe and Asia, after the chief financial officer of Huawei Technologies Co was granted bail and President Donald Trump said he is considering intervening in the case if it helps get a trade deal with China.  A report that Chinese officials are seeking to give foreign companies more access to local markets has boosted sentiment.  Meanwhile US stocks joined a global rally, as the outlook on trade took a positive turn and increased confidence that British prime minister will survive the vote of confidence.  On Friday, borrowing costs in the single currency were lower, after weak data from China increased the concerns about the global outlook a day after the ECB said downside economic risks were becoming prominent.

Oil

On Tuesday oil prices edged higher, recovering from the previous day’s losses amid some support from a modest strength in global stocks, a slightly weaker dollar and unplanned supply outage in OPEC member Libya.   Meanwhile on Wednesday oil prices climbed by around one percent on a rebound of the stock market and on expectations that output cut for 2019 by OPEC would stabilise the supply-demand balance. The dollar which in 2018 has gained 5 percent amid rising US interest rates, has also created a headwind for oil and other commodities that tend to benefit from a slide in the currency. In a monthly report, OPEC said demand in 2019 for its crude would fall to 31.44 barrels per day which is 100,000 bpd less than predicted last month and 1.53 million less than it currently produces.  According to OPEC, the issues that skew economic risks even further to the downside in 2019 are rising trade tensions, monetary tightening and geopolitical challenges.

Automakers

On Tuesday shares of automakers rose, following a report that China could move to cut tariffs on American-made cars.  A proposal to reduce tariffs on cars made in the US to 15 percent, has been submitted to China’s cabinet for review in the coming days, according to a report. This step has not been finalized and could still change according to the report.   BMW, Volkswagen and Daimler rose between 2.3 percent and 4 percent.  European stocks also rallied 2.8 percent on the news, as several carmakers build SUVs in the United States and sell in China.

Malta:  International Trade October 2018

Preliminary statistics show that Malta registered a trade deficit of EUR 303.2 million in October, 2018 compared to a trade deficit of EUR 175.5 million in the corresponding month last year.  Imports increased by EUR 7.3 million, while exports show a decrease of EUR 120.5 million.  The increase in the value of imports was primarily due to mineral fuels, lubricants and related materials partly outweighed by a decrease in machinery and transport equipment.  Meanwhile mineral fuels, lubricants and related materials accounted for the main decrease in the value of exports, partly outweighed by an increase in miscellaneous manufactured articles.

Malta:  Index of Industrial Production October 2018

In October 2018, seasonally adjusted industrial production increased by 0.6 per cent over the previous month.  An increase of 3.9 percent was registered in the production of capital goods.  The production of energy and consumer goods decreased by 3.2 percent and 0.3 percent respectively.  Meanwhile when compared to October 2017, the index of industrial production adjusted for working days increased by 0.9 percent.  Increases were registered in the production of consumer goods (2.1 per cent), capital goods (2 percent) and intermediate goods.  A decrease of 1.2 percent was registered in the production of energy.

‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’