“Angela Merkel’s Fourth Term …..”

Angela Merkel’s Fourth Term

Angela Merkel will serve a fourth term as chancellor as the two main German parties, the Christian Democrats and the Social Democrats will form a coalition to govern the country. This was an overcome hurdle to her fourth term which will bring more stability to the German economy.  The result was 66 percent in favour to 34 percent against, a wider than expected margin.  The chancellor is expected to be inaugurated by mid-March.  Although Germany’s economic boom has not relented, since Merkel won a national election in September which had the worst result since 1949, policy making was held back.  The outcome means the far right Alternative for Germany will be the largest parliamentary opposition party.  With a government now assured through a coalition, the pick of the finance minister will be closely watched.  The challenges are certainly increasing for Angela Merkel as she has been acting as chancellor more than five months since an inconclusive election.  The European Union is looking for leadership on economic and security issues and France is seeking a partner for Emmanuel Macron’s ambitious EU reform plans.

News from the ECB

On Thursday the European Central Bank dropped a long-standing pledge to increase bond buying if needed.  The ECB said in a statement, “the net asset purchases, at the current monthly pace of 30 billion euros, are intended to run until the end of September, 2018 or beyond, if necessary, and in any case until the governing council sees a sustained adjustment in the path of inflation consistent with its inflation aim”. The ECB, however omitted any reference to bigger purchases, which could be a signal that it remains on track to end a three-year-old stimulus scheme before the end of 2018.  The ECB has to face the dichotomy that while growth has exceeded expectations, inflation remains week, hitting its 14 month low in February and staying well below its 2 percent target.  The ECB launched quantitative easing policies three years ago with the aim of depressing borrowing costs and to incentivise firms to borrow and invest.   Although the risks of deflation are gone, the volatility in the currency threatens to derail the efforts undertaken by the ECB.  Furthermore, there are other factors to take into account now such as an inconclusive election in Italy, and the risks of a trade war with the United States.

Italy’s Election

Italy’s election was held under a complex new electoral law and procedures slowed the process at several polling stations.  Research showed that two of the main issues on which Italians have voted in this election were immigration and employment.  The general election did not produce a clear winner.   The vote count saw a huge increase in support for anti-establishment parties whilst former Prime ministers Silvio Berlusconi and Matteo Renzi were the big losers.  Projections based on ballot counting on Monday morning suggested the two forces with the most gains, the Eurosceptic Five Star Movement and the anti-migrant League, could reach a majority in at least one of the houses of the Rome based parliament, should they join forces.  The two parties could have a majority of about 345 seats combined in the 630 strong lower house which would first require the League to break its electoral pact with the other centre-right parties.  If there is no clear majority, Sergio Mattarella, the Italian president could choose to leave the current centre-left government of Paolo Gentiloni in place, allowing time to set up a temporary government to organise new elections.  However, this process can only start after parliament meets for the first time on 23 March.

Fitch Affirmed Malta’s rating

Fitch affirmed Malta’s rating at A+ resulting from its upgrade last year, while commending Malta’s high governance indicators.  According to the credit rating agency strong rule of law and governmental effectiveness in Malta were strong contributors to the country’s A+ sovereign rating.  The agency forecasts that Malta’s economic growth will outperform its peers in 2018.  Real GDP grew by 7.2 percent in the first three quarters, boosted by buoyant service exports and sharp contraction in imports.  Fitch also forecasts that Malta’s general government balance is to remain in a surplus of 1.5 percent of GDP in 2018.  The report also outlines that Malta’s debt ratio is decreasing, supported by high nominal GDP growth and expected fiscal surpluses.  Indeed, Fitch expects Malta’s debt to GDP ratio to keep falling to 45.1 per cent of GDP by end of 2019. The report also acknowledged Malta’s low unemployment rate, which is amongst the lowest in the Eurozone.

US – What’s Next After Trump’s Announcement Of New Tariffs?

President Donald Trump tweeted over the weekend that he would target European car imports in response to an EU threat to American products following the president’s announcement of tariffs on steel and aluminium imports.  Trump’s advisors over the weekend said that US allies would not be excluded from metal import duties.   The director of National Trade Council at the White House said, that there may be exemptions for specific products which deemed necessary for business growth.  The president is expected to sign a formal executive order for the tariffs by the end of next week.

Europe’s Reaction To Trump’s Proposed Tariffs

The European Union has drawn up a list of tariffs on US products with the intention of raising political pressure on President Donald Trump to withdraw his proposed tariffs on imported metals.   The levy would only target $3.5 billion of US goods amongst which are motorcycles, jeans and bourbon whiskey. Furthermore the EU is planning to apply a 25 percent levy on a range of consumer, agricultural and steel products imported from the US.  The EU has expressed concern over Trump’s protectionist stance on trade.  Furthermore, steel has a political importance to the bloc as it started out of the European Coal and Steel Community in the 1950s.  The industry generates annual sales of around 170 billion euros, accounting for more than 1 percent of EU gross domestic product and over 300,000 jobs.    The EU’s executive arm of the Brussels based commission, discussed the retaliatory measures with representatives of the bloc’s governments at a meeting on Monday evening.   Should Trump also follows with the pledge to impose a 10 percent duty on foreign aluminium, Europe might expand the group of targeted American goods. Trump’s vow to curb US imports of foreign steel and aluminium has sparked opposition within his Republican Party.  The threat by the White House will provoke retaliation across the globe and complaints to the World Trade Organization.

US – Gary Cohn’s Resignation

Top Economic Adviser to the White House Gary Cohn is resigning as he refused to back the president’s tariff plan.  Trump said he will soon decide on replacing Cohn, and tweeted “Many people wanting the job – will choose wisely!.”  Trump also said, that Cohen did a good job with helping to deliver historic tax cuts and reforms.  Meanwhile a separate report showed that President Donald Trump’s administration is considering imposing tariffs on a broad range of Chinese imports for its alleged theft of intellectual property.  Upon the resignation news, the dollar slid, stocks tumbled and Treasuries climbed.  The ten year treasury yields fell more than 4 basis points to 2.84 percent. His departure could cause further fluctuations in the financial markets as investors perceived him as a steady hand in an otherwise unpredictable administration.  Cohn’s resignation leaves uncertainty about the economic agenda of the president which will have a ripple effect on foreign exchange and commodity markets.

China’s Growth Rate for 2018

In his annual speech, whilst reporting to the National People’s Congress in Beijing, Premier Li Keqiang announced a growth target of around 6.5 percent for 2018 while lowering the deficit goal to 2.6 percent.   Continued economic liberalization is also on the cards with telecom, healthcare and education targeted for greater foreign investment.  The National People’s Congress continues over the next fortnight discussing the debt pile of the country.

Bank of Japan

On Tuesday Governor Haruhiko Kuroda made it clear, that while the Bank of Japan can find itself thinking about exiting its monetary policy stimulus in 2019 it does not mean that it will materialise.  He told lawmakers, “I said that we would be discussing how to move forward with exit.  I never said we would be exiting immediately in fiscal 2019”.  During his testimony, the yen strengthened, hitting a high of 106.07 against the dollar before weakening.  Since Kuroda joined the Bank of Japan in 2013, he has presided over a massive increase in its stimulus by cutting interest rates below zero and buying hundreds of trillions of yen worth of assets.  Kuroda’s words are being thoroughly weighed on the slightest hints when Japan will follow other central banks such as the Federal Reserve in normalising monetary policy.

Planned Meeting between US and North Korea Boosts Recovery

News that the United States and North Korea could meet for talks increased the hopes that political allies of President Donald Trump could convince him to avoid a global trade war.  North Korea said that it was willing to talk to Washington about denuclearisation and would suspend its nuclear tests while those talks were under way.

Moody’s Downgrades Turkey’s Sovereign Rating

Moody’s cut Turkey’s sovereign rating further into junk territory overnight arising from a continued weakening of its economic and political institutions and the increased risks from its wide current account deficit.  The rating was downgraded by one notch to Ba2.  Moody’s said that, “the government appears still to be focused on short-term measures, to the detriment of effective monetary policy and of fundamental economic reform”.  It further added that, “set against a negative institutional backdrop, Turkey’s external position, debt and rollover needs had continued to deteriorate”.  Moody’s had cut Turkey’s rating to a non-investment grade of Ba1 in September 2016 and undermined investor sentiment as it was once seen as one of the world’s most promising emerging markets.  Meanwhile, on Wednesday, Turkey’s central bank kept interest rates steady and said it would keep policy tight given double digit inflation.  President Erdogan has repeatedly called for cheaper credit to boost the economy, leading to investors’ concern about political pressure on policy. Amongst other agencies, Standard & Poor’s has a BB sovereign rating on Turkey in line with Moody’s rating.  Fitch has downgraded Turkey to “junk” with a rating of BB+, one notch higher than Moody’s and S&P.  Turkey depends on investment flows to fund its current account deficit, one of the biggest in the G20 and service its foreign debt.  Downgrades could force the country to pay more to borrow money in international markets.  Last year, the Turkish current account deficit widened 42 percent to $47.1 billion, exceeding the government’s target.

‘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 particular investments or investment decisions, or tax or legal advice. Similarly, any views or opinions 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 particular 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. All investments carry risks. Your investments may go up as they may go down, including the possible loss of capital. Past performance is not indicative of future results. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views, or opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd. Timberland Invest Ltd. is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act. ’